MACCLESFIELD 14 JANUARY 2021
Needless to say, it has been a tumultuous year with more challenges than ever before, but the new year brings its customary hope and lots of positivity as we seemingly edge closer to recovery.
Despite the ongoing effects of the pandemic, many of the previous year’s predictions still ring true today, including the increased popularity of Open Banking, Neo Banks and of course, many more partnerships being struck across the industry and joining Monevo during the year.
In 2021, it is likely we will see a continuation of some of these themes, along with a few new trends that will sweep through the lending market on the back of recovery. Take a look at our hottest topics for the upcoming year that will impact the lending market in both the UK and US.
A huge theme of last year has been the adoption of Open Banking, and whilst we have seen it increase in popularity in the UK and US, this is a train not yet at its destination. That is why we expect Open Banking as a trend to continue into the new year as consumers increasingly start taking advantage of more personalised credit results.
Lenders are using the data more effectively and more often as a result of the pandemic to improve affordability, anti-money laundering and KYC checks. As mentioned in a previous article, Open Banking presents itself as a very real remedy to help understand a prospective borrower’s financial position and in a world of uncertainty, it shows better indicators of their current and future affordability.
As a consumer, you should expect to see Open Banking connections in more places, for more products, and with better UX. Here at Monevo, we are re-developing how we connect a customer’s account data to make it an easier, clearer and a more intuitive process, alongside working closely with alternative Credit Reference Agencies to improve our eligibility score models through the use of Open Banking data.
Even though Open Banking will continue to take precedence in 2021, you can expect Open Finance to be riding the wave of account aggregation too.
Where Open Banking was the catalyst for a technological shift for banks and providers, Open Finance will take up the baton at some point. Don’t expect too much in terms of action in 2021, but as a topic we’ll hear more and more as the FCA review picks up from where it was paused last year.
This will lead to an extension of Open Banking into pensions, investments and mortgages, allowing consumers to easily navigate through a wider world of credit products and financial services, all based on the data provided by Open Banking.
The utopia for us is a connected world where seamless product switching is made available via data exchange, all with the goal of saving customers money. Whether this aligns with the commercial reality for lenders and financial institutions to operate successfully is the real question. For now, there will be plenty of chatter around Open Finance going through 2021 and hopefully even some signs that major lenders will start to incorporate it into their individual customer journeys.
2020 has seen both RBS and Monzo offering TransUnion credit report services this year, which is the start of a growing trend to a more connected world. This will put the customer at the centre of the journey and will ultimately improve services, customer experiences and access to data through fintech. Open Banking and Open Finance are effectively an extension of this.
This is testament to how our team has been able to adapt to a new way of working and still achieve growth, and this will continue throughout 2021. We are looking forward to announcing more partnerships in the new year, stay tuned!
We’re seeing more fintech-led product innovation in the lending space, which is an exciting prospect as we head through 2021. Monevo are constantly working with boundary-pushing new lenders in the credit space, meaning we get an intriguing first-look at the latest developments.
You can expect to see a lot more product innovation this year. We’ve already seen Livelend and Leap Lending both offer products with APRs that reduce over time. In addition, there will be a lot more credit cards from the likes of Tymit and Koto who are re-hashing traditional models and reimagining credit lines and how repayments are structured.
In the US, our prediction is that loan rates should remain low and stable in 2021. This is a continuation of the Federal Reserve’s decision to slash interest rates to provide economic hardship relief to those businesses who were severely affected.
These low interest rates are also unlikely to be affected by events occurring in the early part of 2021, namely the introduction of COVID-19 vaccine and the incoming Biden administration. This is certainly encouraging for US customers who are looking to borrow early in 2021.
On this side of the Atlantic the Bank of England rate remains at it's lowest ever level, with the economic impact ongoing, little change is expected here.
US Fintechs Go Public
Elsewhere in the US lending market, we’ve seen initial public offerings (IPOs) from SoFi (in the form of a Special Purpose Acquisition Company deal) and Upstart that will come to fruition later in 2021, as well as Affirm who will be going public as early as January 13th.
These financial fintechs entering public markets in the US is a good indication for things to come in 2021. Each has a strong offering with broad product sets that are likely to provide all-in-one solutions for customers looking for multiple products. Are more fintech IPOs on the way? We certainly hope so…
Another trend that is likely to become much bigger in 2021 is embedded lending, which is the offering of financial products by a non-financial entity. This tech-enabled revolution means that a customer will be able to access lending services at any point in the customer journey, whether it is through a commercial portal online to a physical point of sale in a retail environment or showroom.
This revolution in the accessibility of lending is likely to grow in 2021 as customers seek out different ways to borrow due to social restrictions that have been implemented due to the pandemic.
Credit access has been hampered in 2020 by the pandemic, so much so, that in the UK lenders both paused and tightened their credit risk policies. In the US, TransUnion has tentatively reported that as long as the economy continues to recover and the pandemic starts to wind down, credit agencies should start to loosen restrictions and improve access to credit.
As all signs point to light at the end of the tunnel as we progress past spring, we can expect access to credit to increase in line with this slow recovery. Macroeconomic confidence is key for lenders to get back to full strength and a return to work for more industries will see access to credit accelerate and more customers receiving the credit they’re seeking.
We’re all optimistic at Monevo HQ that 2021 could very well be our best year yet...