The Biggest Trends in Loan We've Seen This Year

The banking industry's future seems promising, with many changes and opportunities to come. In addition to advancements in digitalization and sustainability, financial inclusion has emerged as an innovation driver. Our 2023 projection for the lending industry is based on our examination of global credit developments in 2022. We discovered and classified several hundred incidents from over 50 nations for our study.

Credit events: a global perspective

In our study of the 2022 loan business, we looked at credit events and trends from throughout the world using respected German and worldwide newsletters (Finanz-Szene, Finextra, Der Treasurer, and others), as well as news and company websites. This allowed us to find 347 events in 52 countries across five continents for 2022.

What was going on in the lending business in 2022?

In comparison to the previous year, green financing / green lending produced significantly more interest and momentum in 2022. We have seen an increase in the issuance of so-called green loans (finances that must be utilized for a sustainable purpose) and in financings with specific requirements tied to sustainability criteria. Furthermore, other instances demonstrated the increase in regulatory requirements. These events typically include increasingly complex reporting and disclosure requirements for ESG problems. Fintech companies, in particular, are eager to create solutions that suit these requirements.

A driver of innovation – financial inclusion

Financial inclusion is a driving force behind innovation. Although financial inclusion is not a standalone topic, it has been identified as a critical motivator for both E2E lending and data-driven lending. Financial inclusion refers to measures aimed at approaching and attracting customers who have previously been overlooked by banks and financial services providers, often due to factors that would result in a negative assessment of debt servicing capability or creditworthiness (e.g., irregular or low income) under traditional evaluation criteria. Customers residing in distant areas are another major target category for financial inclusion, and many of them have gained access to the banking network as a result. In addition, procedures and goods were designed and digitalized specifically for these customer groups.

Digital E2E lending

As in the previous year, the design of an end-to-end digital lending process (E2E) was listed as a key topic. While prior years' concentration was on digital loan offerings, in 2022, we saw a shift toward a digital loan agreement conclusion. Corporate and retail clients equally anticipate a seamless digital multichannel customer experience.

Data-driven lending (DDL)

There have been several data-driven lending occurrences in recent years, and there will most certainly be more in the future. In 2022, artificial intelligence and machine learning (ML) were widely employed in the finance industry to provide personalized loan offers, grade creditworthiness, and undertake debt servicing capability checks using alternative data (mobile phone data, social media, etc.). AI offers several uses along the lending process, some of which are already in use (see "Document verification: detecting fraud using AI", German version only, English version coming soon).

Lending platforms and ecosystems

Lending platforms and ecosystems remain hot subjects. With so many platforms available (comparison platforms, sales platforms, and credit marketplaces), financial institutions are pushed to either develop their solutions or collaborate with platform providers, such as through embedded finance.

Buy Now, Pay Later (BNPL)

In 2022, there were numerous events in the BNPL company. A major number of these events are accounted for by investment rounds of fintech startups looking to enter the BNPL business or established players who have not previously actively promoted BNPL (e.g., Apple). There were also a few acquisitions and consolidations. In light of current trends, the prospects for the BNPL market are highly promising.

Decentralized finance lending

Decentralized finance, particularly decentralized financing, was significantly impacted by the 2022 crypto market crash. As a result, there were just a few credit events to identify in that area. Various fraud incidents and cyber-attacks have damaged public trust in cryptocurrency. Nonetheless, we see significant potential in blockchain technology and smart contracts, particularly in the context of decentralized lending.

Green finance is establishing itself and becoming a challenge

In 2023, financial institutions will continue to provide increasingly diverse kinds of sustainable financing to both corporate and retail customers. The task will be to develop transparent and acceptable product standards that have a positive influence on sustainability and contribute to the institutions' "green asset ratio". At the same time, (financial) corporations will need to devise innovative ways to deal with the added load imposed by ESG reporting standards.

These businesses will have to address the question of how to best collaborate with their consumers to obtain the essential data and information in the most resource-efficient manner feasible.

 The focus of digital E2E lending processes is on credit analysis, lending decisions, and contract conclusion

Digital E2E processes are still a hot topic in 2023. Credit institutions should question themselves, "How are my processes designed, and how do my customers want to experience them?" It will be especially difficult to determine how newly created digital solutions along the credit process and core banking systems should interact to get the best results.

Lending platforms will continue to grow resulting in the emergence of entire ecosystems

In a highly fragmented market with numerous services, products, and suppliers, platforms and ecosystems are critical to a seamless client experience. We are already seeing platform operators increasingly attempting to reach end users directly, so intentionally eliminate intermediaries.

Loan demand and granting are on the decline as a result of present economic conditions. To be successful in the lending sector, banks must increasingly include platform business into their strategy and ensure their technical and organizational operability.

Conclusion

The credit market is rapidly evolving, and the pace continues to accelerate. Banks will need to monitor not only overall changes but also the recognized tendencies. Green finance will be a major priority in the lending industry, with a continuous emphasis on developing sustainable credit products. The digital E2E lending process will be heavily focused on analysis, judgments, and contract conclusions. Lending platforms and ecosystems will have a substantial impact on bank lending. Our findings suggest that institutions should aggressively promote and engage in the three topics "green finance", "digital E2E lending process", and "lending platforms and ecosystems".