COVID-19 and lockdowns across the world have made both 2020 and 2021 very tough for most industries. The year 2020 saw a decrease in consumption by nearly £140 billion, one of the most significant drops in the UK’s history.
Although 2021 saw a rise in consumption, it’s clear that the economy was still hampered by COVID-19. With a lack of consumer spending, the demand for money-lending firms was relatively small. With little to no investment, it’s unlikely that firms were borrowing large amounts of money either.
Now that vaccines are rolling out and the economy is beginning to rebound, how will this affect the money-lending industries?
Outside of COVID-19, there has also been a rise in the prominence of cryptocurrencies and blockchain systems worldwide. Many firms and consumers are wondering how the ever-growing influence of NFTs will change the money-lending industry in 2022.
Read on to find out how experts believe these factors will affect trends in the money-lending in the new year.
How are Cryptocurrencies going to affect the money-lending market in 2022?
Cryptocurrencies have been around for a long time now. Bitcoin was formed in 2008 and was the first cryptocurrency in action.
Bitcoin, as well as other cryptocurrencies, were steadily growing in popularity in their early years. They started to be taken seriously around 2012, but recent years have seen a boom in the popularity of cryptocurrencies.
The cryptocurrency market as whole experienced record amounts of growth in 2021, so it’s possible that money-lending firms could be thinking about cryptocurrencies as instruments to invest in.
However, the problem is volatility is still a substantial weakness of cryptocurrencies. In April 2021, Bitcoin reached record highs of over £46,000. Only two months later, the price of one Bitcoin had halved to £23,000.
Most cryptocurrencies will experience this type of heavy price movement. Therefore, many lenders won’t currency consider cryptocurrencies as the surety or current of a loan.
However, it’s impossible to know what the future has in store for the cryptocurrency market. If the market begins to experience a lower level of price volatility, lenders may start to consider cryptocurrencies seriously.
We will probably see an increase in asset-based loans against crypto-currencies, just like loans against gold or shares.
Are NFTs going to have a significant impact on the market?
2021 has also been an excellent year for NFTs, as you will have probably seen them all over the news. In March 2021, the digital artist Beeple sold an NFT for a record $69 million. Compared to cryptocurrencies, NFTs are a much newer concept.
Although NFT growth is expected to be pretty high this year, it’s unlikely that it’s going to be a mainstream trend amongst money-lenders. At the moment, they are still too new, and they are probably going to be viewed as speculation.
The speculation aspect may see a few firms set up to fund NFT investments in 2022.
How will COVID-19 change the lending market?
We’ve now been through two years of a global pandemic. Most industries are now on the rise again, and economies worldwide are seeing growth again.
Lockdown saw more frugal spending habits among consumers. This is due to both lacks of opportunities to spend and economic uncertainty.
In 2021, holidays were a severe hassle. The process of testing and red and green listing countries made traveling abroad both inconvenient and more expensive. This means consumers were less likely to take out loans to fund a lavish holiday.
Furthermore, economic uncertainty means consumers are unsure of the future, resulting in their spending pattern changing. With more people worried about the economy’s performance, they’re less likely to incur a loan to buy a car.
Even though economies are beginning to recover, unemployment remains high. Lack of employment will likely increase regulation and restrictions when lending to high-risk consumers.
However, there is also the possibility of more long-term changes in 2022. In 2021, the number of time consumers spent online significantly increased. Working from home and long periods spent inside led to more people browsing online in their free time.
Fintech companies have capitalized on this to offer new lending opportunities to consumers. One example of this is point-of-sale lending. These innovative lending systems are likely to grow in popularity.
Banks have been relatively slow to react to this and shift the lending industry’s market share from banks to online fintech companies in 2022. However, this inactivity won’t last for long, so innovation in larger banks will probably increase to try and deter new entrants to the market.
What are the most prominent trends in 2022 going to be?
Brendan le Grange, money lending expert and podcast host of How to Lend Money to Strangers weighed in on this. Brendan le Grange states, “We’re seeing so much innovation focused on ways to get the right data out of SMEs as fast as possible. Open Banking is one route, of course, which allows all lenders to see transaction-level activity. But more and more we’re also seeing a growing list of SME-focused fintechs that are being even more proactive in where they find – or even create – data.”
He continues, “I’ve spoken to a few of these entrepreneurs on How to Lend Money to Strangers, but they represent a far bigger movement towards frictionless financing for SMEs. Some are connecting themselves into existing but under-utilised data streams – like using data from point of sale machines to better understand merchants’ daily turnover – while others, are building those data streams themselves – sometimes by creating marketplaces that bring borrowers and lenders together and sometimes by building back-end software, but always with an eye on the data being created and how that can inform future credit decisions. These moves away from financial data for lending, are likely to accelerate over the coming year or two.”
Buy Now Pay Later with Credit Cards
For many years credit cards were the most convenient way of borrowing money. It is pretty helpful to access immediate credit in your wallet for emergencies and necessary expensive purchases. Advocates for BNPL lending claim that BNPL firms have been so successful recently because they have exposed problems with credit cards.
Credit cards offer convenient but often inflexible credit, and it’s easy to get into problems. Of course, recently, there’s now the option to switch apps and apply for a personal loan, but no one will go through this whole process to buy a new jacket or shoes.
BNPL companies have solved this problem by providing immediate, usually interest-free credit when buying the good. This means you can quite easily take out a loan to buy a good or basket when you need to.
There are issues worries with this unregulated lending, primarily as it’s marketed as an easy way to buy expensive goods. Many people don’t understand that it can affect credit scores, and it’s a pretty easy way to get into debt if you’re not on top of your payments.
Therefore, regulators will probably crackdown on the BNPL industry and impose new regulations to slow down the fight for market share. These regulations will likely focus on affordability controls, minimum transaction value for split payments, and advertising. All this should increase protection for consumers.
Despite the moral argument against BNPL firms, they’re performing very well now. Credit card companies will react to this by providing more flexible lending agreements so consumers can have more control over what they pay and how long the agreement lasts.