Consumer lending is the process of extending credit to individuals, typically in the form of loans. The decision whether to lend to a particular consumer is often based on their credit worthiness, which is a measure of their ability to repay the loan. Consumers with good credit scores are generally considered to be a low-risk investment, and are more likely to be approved for a loan. On the other hand, consumers with poor credit scores are considered to be a higher risk, and are less likely to be approved for a loan. In general, the higher the risk, the higher the interest rate that the consumer will be charged.
A recent survey completed on behalf of card platform Marqeta of European consumers highlights the challenges and opportunities for consumers when looking to secure loans. Finextra covers the details including insight from Marqeta on the broader consumer lending environment:
Unsurprisingly, most respondents (78%) remarked that there must be a smarter way to assess loans than credit scores and 72% said that credit assessments don’t reflect whether or not they are able to pay.
Anna Porra, European Strategy Director at Marqeta comments: “With cost of living rising and many people struggling, providing access to finance to those that need it is essential. Yet the current lending system often penalises people, which is a sign that things are broken. It’s crazy that someone living frugally, paying rent, and saving for the future is often lumped into the same box as someone living beyond their means who doesn’t have a mortgage or other financial commitments – the two are not the same.
Marqeta reports many interesting consumer lending results from the survey, including the following:
- 67% of people surveyed want a more engaging, less transactional relationship with their lender
- 61% of people surveyed are interested in having funds issued to a dedicated Visa or Mastercard card to better track spending, along with real-time advice on financial behaviour
- 69% of people surveyed are open to pre-agreed spending controls, if it means more competitive rates.
Those findings highlight the desire for consumers to utilize developing trends like credit-building secured cards and emerging technologies like A.I. to assist their path to better credit worthiness. The findings also present future-looking options beyond traditional lending that favor rising trends with BNPL, more flexible revolving credit, and digital and open banking options that allow consumers to have better personalization and control over their borrowing.
Porra concludes: “While traditional banks remain popular, interest in digital propositions is growing. The winners of the future may be the organisations that can get a really clear understanding of their customer, their spending habits, and their level of affordability. By knowing their customers better, lenders can make fairer decisions, while still driving down risk. Cards present an opportunity for banks to modernise and fintechs to grow market share as they deliver real-time insights that enable just outcomes for borrowers and lenders alike. Consumers want a better, more informed borrower experience – cards are well placed to help meet these expectations.”
Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group
