Digital credit events - a global perspective on the first half of 2021

California-based online installment loan specialist Affirm goes public on the NASDAQ stock exchange. ING Ventures strengthens partnership with FinTech Flowcast, which uses AI to reduce risk in the loan decision process. Berlin-based loan comparison platform Smava acquires Finanzcheck. And no fewer than seven banks are partnering with technology group Finastra to develop an online marketplace for syndicated loans. 

These announcements have at least three things in common: First, they are events from the first half of 2021; second, they are digital credit events; and third, they exemplify three globally observable themes in credit. 

The themes are: Online Borrowing, Buy Now, Pay Later, and Data Driven Lending.

We identified these three themes as part of a recent study on digital lending. For this purpose, we observed, analyzed and subsequently evaluated sources from 30 countries on five continents over a period of six months. In total, more than 150 digital credit events were processed and evaluated for our study.

Online credit: The focus is on the complete digitization of the end-to-end (E2E) application, processing and disbursement path along the customer journey. The integration of individual IT modules, such as workflow and document management systems or legitimation and signature solutions, plays an important role here.

"Previous lessons learned in consumer lending are increasingly finding their way into other lending areas."

Buy Now, Pay Later (BNPL): Online providers such as Affirm, AfterPay and Scalapay generally offer their customers interest-free and cost-free installment financing of their shopping carts. The importance of this topic has increased significantly, not least because of the Corona pandemic and changes in customer behavior.

"There has been an increase in customer demand for flexible payment and financing solutions in the market."

Data-driven Lending: The efficient use of all available data along the customer journey is the focus here. The use of automated scoring and decision models enables granular creditworthiness checks. In addition, data is used to make predictions regarding expected borrowing (predictive analytics).

"By means of targeted utilization or data evaluation, a shorter time-to-yes as well as time-to-cash and thus shorter credit process cycles can be realized," says Marcel Kolbecher.  

In addition, there are three other individual topics with particular innovative character that caught our eye in the first half of 2021: DeFi Lending, Green Lending, Lending Platforms & Ecosystems. With DeFi Lending, the interaction of market participants via a distributed system of decentralized applications or apps means that there is no longer a need for a central party as an intermediary, which shortens the overall credit process.

New market standards as well as changing regulatory frameworks in the area of sustainability form important externalities that impact the lending process. Based on sustainable principles, Green Lending promotes financial flows from investors into sustainable developments. Ecosystems are increasingly emerging along different product types (e.g. consumer, real estate and corporate finance) for the holistic offering of value-added services around credit.