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5 Trends To Transform Your Lending Business In 2023

The past couple of years have been marked by uncertainty both in the financial industry and beyond, with a shift toward remote working, digital-first strategies and a growing e-commerce industry—increasing from $3.46 trillion in 2019 to $5.7 trillion in 2022.

For lending organizations, this means that the way business is conducted has changed significantly. As we prepare to close the 2022 year and move into 2023, many lending industry executives wonder if they have adequately prepared their businesses for success or survival because of growing concerns about recession, coupled with rising inflation rates—8.2% in the U.S. (September 2022)—and global instability holding strong.

Trends That Could Impact The Lending Industry In 2023

As the saying goes: “Failing to prepare is preparing to fail.” This year is all about frugality and ensuring your finances work for your company smartly. These are some of the trends that lending providers should pay attention to this coming year.

ID Verification Services

Estimated to grow to $18 billion by 2027, ID verification solutions are part and parcel of any digital financial solution. Closely connected to AML and KYC regulations, ease of use and efficiency are crucial to ensure regulatory requirements are met while ensuring customer satisfaction is exceeded with every interaction. For companies looking to improve their offerings, smoothing out the ID verification process is a step in the right direction, as this not only builds brand trust but also lowers the risk of fraud.

Changing Regulations

There’s been much talk recently of outdated policies from financial regulators worldwide, and in 2023, this could move from talking to policy. Although these vary from country to country, some common denominators include the need for cryptocurrency regulation and changes to look at the role of alternative finance providers. Additionally, for those operating in the U.K. market, post-Brexit regulations under the FCA are set to come into play, which companies need to take note of.

Aside from changing regulations, businesses must take into account the cost of staying compliant. In a 2022 survey (Cost of Compliance), 62% of respondents noted the cost of compliance could increase, meaning additional funds may need to be allocated this year. For companies seeking to integrate technology, new regulations may impact how these services are delivered.

Embedded Financial Solutions

Considering the shift to a remote-first approach to life, it’s little surprise that the embedded finance sector is set to reach $138 billion in the next four years. Although embedded finance has been around a while—think Klarna, Clearpay, etc.—this year, as companies work to develop more integrated products, embedding financial payment solutions is a natural part of that. This is especially so considering an economic downturn where people may be more inclined to use such options to spread the payments for higher ticket items over a longer period. What this means for companies is they may need to reconsider how they are selling their products and whether embedded finance needs to be part of the solution from its inception.

Alternative Financing

According to Deloitte’s Alternative Lender Deal Tracker report, there’s been a 79% increase in deals since H2 2020 and a 30% increase from H1 2021, with the average fund size currently estimated at $1.9 billion. To this end, alternative lending is now considered an asset class of its own with investors, and it’s no surprise that the industry is set to grow at a CAGR rate of 23.6% from 2022 to 2030. This makes alternative lending an excellent opportunity for lending businesses seeking new opportunities, as well as their clients looking for alternative borrowing solutions. It offers a lot more flexibility to create financial products adapted to the modern market.

Blockchain-Based Solutions

Often when we think of blockchain, our minds automatically drift to the volatile cryptocurrency market. However, for lending businesses in 2023, this isn’t the only thing they should be concentrating on. Instead, look at the technology behind it. Blockchain has numerous uses that could soon come into wider usage. For example, decentralized ledgers could be used to track payments, loans could be provided using peer-to-peer systems and consumer data could be made secure by the use of encryption technology. 

Trends To Put On Hold For Now

Despite the market challenges, and economic downturn, there is light at the end of the tunnel. With a well-considered strategic approach, companies can hope to emerge from the crises in a stronger position than before.

That said, 2023 is a year to exercise caution. Risky investments, experiments with novel technology that are not grounded in data and research, and digital assets (not blockchain) are areas to approach carefully this year. Although in better financial times, these may be lucrative proposals. Now is the time for strategy and planning, not risk and experimentation.

Steps For 2023: Putting Trends Into Action

A report by Deloitte questions whether “2023 could be the year the ‘new normal’ fully come into view?” It’s true. Despite the current challenges the market faces, 2023 is crucial in charting the course to increased profitability in the future. For lending businesses, this means putting in the strategic work now to reap the benefits in the future, and always preparing for the unexpected as the past few years have proven.

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Dmitry Dolgorukov

Dmitry Dolgorukov

CEO

GiniMachine

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19 Mar 2018

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Vilnius, Lithuania

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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