The year 2021 continued the post-pandemic economic uncertainty and again demonstrated the importance of alternative lending. Technology-agnostic fintech lenders much more easily adapted to lockdown’s constraints than traditional ones who had to adapt their products to the technologies themselves. However, to sustain their operation in the face of the recession, both had to create new business models, new strategies and target new consumer segments.

And now, standing on the verge of 2022, we cannot help but wonder: where is the industry going? As the recession continued some trends from the previous year and set some in motion in the expiring one, we try to look in the tomorrow, making predictions of the most influential trends for 2022.

What will Alternative Lending Be in 2022? Our Expert Predictions


Technologies will Be Deeply Integrated into Online Lending Systems

First of all, developers will further improve online lending systems by automating these. For example, machine learning and optical character recognition algorithms are likely to be used in them to minimize or even eliminate all manual work lenders now have to put to review legal documents. Moreover, machine learning can help analyze transactional data to define spending habits and categorize risks. Based on that data, lenders will be able to create more personalized offerings, which became their priority in addressing consumer demands.

Second, thanks to Open Banking and therefore open APIs, lenders will be able to access alternative sources when analyzing data from existing accounts. In turn, real-time data will allow them to access third-party providers, digital profiles, search histories, and other information for a more detailed overview, and, ultimately, more informed hence a more accurate assessment of the consumers’ ability to repay debts.

Personal Interaction will be Preferred over Virtual Assistants

Yes, lenders will be more concerned with delivering personalized experiences to consumers, but these won’t be the ones consumers will want to have. Instead, consumers already expect to have personal interactions with alternative lenders. The majority of consumers say they don’t want to get some form of self-service, particularly, regarding their financial situation in the post-pandemic period. Instead, they would like to have personal communication — whether it be a call, online messaging, or some other form of real-time talk — every time they deal with lenders.

That is, lenders can’t rely solely on virtual assistants to personalize their contact with consumers as those can’t entirely cater to their needs. After all, chatbots and conversational AI aren’t trained enough to consider them a sufficient replacement to traditional personal interaction. Even Gen Z consumers who are generally OK with digital interfaces prefer to have personal contact with a lending institution they apply to.

BNPL will Pose a Huge Threat to Banks’ Well-being

Most likely, BNPL credit offerings still have the market to take over since BNPL providers create new ways to bring value. For example, Klarna now promotes point-of-sale financing for smaller purchases; however, it targets consumers of traditional products, so there is still an untapped market of short-term, low-credit products.

In the meantime, Klarna is looking for ways to build a more detailed consumer profile by combining consumers’ credit data with the data provided by the related Credit Reference Agency. Thanks to Open Banking, the planned hybrid solution should improve lending and borrowing procedures as well as access to credit, and “equip” lenders with new products to offer to consumers based on their behavioral data.

On the other hand, some BNPL providers like Afterpay launch their own credit cards. Amidst all efforts BNPL providers put to beat the competition in the lending space, banks have to worry about their market stance. After all, BNPL may become a common credit option along with the ones they offer. But rather than blindly competing with those, banks should think about what they can learn from BNPL providers in engaging consumers throughout their purchase journeys.

Consumers will Juggle Between Financial Providers for a Better Service and Prefer Mobile Banking Apps

Although traditional lending consumers generally feel comfortable with what they are offered, ultimately, those who think otherwise turn to fintechs for the services banks can’t offer or aren’t good at.

What’s more interesting is that the majority stays with banks because they realize they can have a portfolio of services from different providers. According to the study by EPAM Systems, one-third (36%) of US consumers say they would rather use various financial providers to cover different needs instead of a single provider.

However, 10% of consumers changed their bank accounts during the pandemic. In the nearly-couple-of-years context, the figure is insignificant, with 55% of consumers saying their financial providers coped with the pandemic well. But if we look at the same issue from a decade-long perspective, we will see that the shift was something worth considering as over a half (53%) of US consumers changed their financial providers over the last decade.

Whichever provider — traditional bank or fintech — they deal with, consumers expect to have a “digital’ experience with it, mainly in the form of a mobile app. Moreover, the app should be continuously upgraded to keep that experience flawless. Why so? Because 56% of consumers reportedly use a banking app at least weekly, and 24% use some every day.

Generational Breakouts of Bank Mobile App Use

A Fragment from an Infographic “Generational Breakouts of Bank Mobile App Use,” Source: EPAM Systems

Mortgages will be Highly Demanded

Since many people own homes for decades, there’s still an untapped opportunity on the mortgage market. Lenders can leverage it with new customer-centric, technology-agnostic mortgage products to attract new prospects and turn most of them into buyers.

For example, with interest-based mortgages, consumers will have more flexibility in how to manage finances and decide how to pay back mortgage balances. As monthly repayments only cover the mortgage’s interest, consumers can spend more income on improving their homes, which makes a property more valuable.

As consumers’ financial needs evolve and change, they expect lenders to anticipate their mortgage expectations (even before they realize them) and ultimately create hyper-personalized mortgage offerings. For example, when purchasing a home, they want to browse, buy, and secure a mortgage through a real estate web portal with no interruption. Most likely, the trend in real estate for 2022 will revolve around creating these seamless consumer journeys.

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Bottom Line

Alternative lending stands on the technology edge, with BNPL being among the frontrunners of its major types. Consumers, on the other hand, get quickly used to the new products brought by lenders thanks to machine learning, OCR, and AI. These offerings don’t tempt or attract them that much, but what they truly value at all times is personal experiences, primarily when negotiating credit options.

In this competitive space where traditional lenders have a solid infrastructure and alternative ones have technologies on their side that allow them to make hyper-personalized offerings, consumers are more likely to opt for multiple providers instead of choosing a single one. However, those providers who have mobile banking apps will be in a better position than others.

At post-pandemic, people ask for mortgages more often, which makes these loans one of the most demanded. Consumers expect personalized offers here, with a single place where they can get and secure their mortgages.

All these trends mean a groundwork for lenders to do in 2022. Meanwhile, for us, it’s exciting to see what really comes next as the result of their efforts.

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