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Despite the pandemic, macroeconomic challenges, and the potential for a recession, personal lenders remain increasingly popular.

In 2020, the global personal loans market size was valued at $47.79B, and it is projected to reach $719.31B by 2030. In the UK, while 47% of adults report feeling uneasy using credit products to borrow money, consumer lending still reached over £28B in January 2023, whereas across the pond, a record 22.5 million Americans currently have at least one unsecured personal loan, which is a 12.9% YoY increase.

According to The Global Payments Report 2023, BNPL accounted for over $100B of APAC’s eCommerce transaction value in 2022, and BNPL’s global transaction value is projected to grow at 16% CAGR from 2022-2026. In LATAM, credit cards have high penetration, and remain the leader in eCommerce payments. Their adoption rates among the six LATAM countries featured in GPR 2023 ranges from 52% in Peru to 81% in Brazil.

Alongside growing appetite for diverse consumer lending options, millions of third generation digital natives are entering the workforce, expecting instant financial management through mobile devices. Driven by customer expectations and the need for bespoke services, lending is evolving to meet this demand.

Capturing cloud value

Currently, the credit granting process of traditional lenders is complex and time-consuming. Digital transformation is affecting the financial industry and is pushing incumbents to rethink their systems and architecture.

Most FIs today have a presence in the cloud, but adoption in the financial services sector is still at a relatively early stage. Lenders have a reputation for being slow to adopt new technologies, often relying on disparate and outdated systems with cumbersome user interfaces. Deloitte research shows that up to 40% of lending resources’ time gets used up on non-core tasks due to legacy systems. But that is about to change.

Previously, cloud migration projects aimed to cut costs, but it now enables competition with digital rivals and revenue generation. Cloud lending is unmatched in terms of flexibility, scalability and security, empowering lenders to innovate, go to market quickly, and iterate to optimise products.

Open banking to reinvent loan origination

Open banking allows consumers to share transactional history with trusted providers, significantly speeding up application processing. Real-time intelligence creates profiles based on spending behaviour and income, eliminating the need for documents, completing applications within 60 minutes.

We can expect to see open banking being adopted more widely to offer seamless customer experience. By leveraging AI to analyse customer data and design personalised offerings with unique costs, conditions, and bonuses, open banking is the key facilitator of hyper-personalisation. In the era when basic personalisation is no longer sufficient in financial institutions' efforts to attract and retain customers, this will become an important differentiator.

ESG lending foundation laid

According to the EIU’s latest report on climate change, ultra-low pandemic rates triggered a surge in sustainable financing, but the ESG landscape shifted in 2022 due to Russia’s war on Ukraine and economic concerns. The transformation of ESG will persist amid ongoing conflicts, with regulators promoting clearer reporting standards. While another ESG boom is unlikely in 2023, a foundation is being laid for gradual appeal as the global economy recovers going into 2024.

In 2022, Mambu surveyed 6000 consumers on their attitudes to green finance. The message was loud and clear: 60% said they would like every financial service they use to be sustainable.

Businesses that aim to gain a competitive edge in lending, will benefit from embracing sustainability-linked loans, investing in ESG-friendly technology, and transparently addressing concerns like carbon emissions and gender wage gaps.

AI, ML & blockchain: The next-gen ecosystem

Embracing a composable approach, leveraging SaaS ecosystems, and partnering with best-in-breed solutions are strategies adopted by lenders to address the challenges of integrating existing systems for a seamless customer experience. SaaS adoption in the financial services ecosystem will continue to rise, allowing lenders to select scalable solutions tailored to their unique products.

AI and ML play a vital role in automating loan underwriting, improving risk assessment models, and enhancing customer experience. These technologies analyse large volumes of data swiftly and accurately, leading to more efficient lending decisions. Additionally, blockchain technology provides heightened security, transparency, and traceability to lending transactions.

Technology innovation has already disrupted various industry sectors, and the financial services sector is poised to experience similar impacts. As technologies mature, financial institutions have an equal opportunity to compete effectively.

Mambu can help you stand out with distinctive and targeted consumer lending solutions that delight your customers and put you ahead of the competition. Learn more about our approach here.

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