A new report revealing the latest trends and future predictions in UK lending and borrowing has been launched. The most notable trends include the growing importance of brand and trust for borrowing decisions and AI innovation, a dip in the number of people factoring green credentials into their decision making and the growing popularity of BNPL.
The report, by Lenvi, provider of lending software and solutions, also reveals changing borrowing behaviours and perceptions of what is “acceptable”, as well as disparities among vulnerable groups.
The report reveals that borrowers are placing more emphasis on brand than ever before, with consumers putting equal weight in brand reputation (38%) and interest rates (39%) as the top things they look for in a lender – more than any other factors. This is compared to 2013 when almost half (45%) said they would borrow from any lender as long as they were happy with the interest rate, with brand loyalty rarely factoring into decision making. Richard Carter, CEO, Lenvi said:
“In today’s increasingly competitive FS market, brand is king. Borrowers are telling us that, nowadays, a race to the bottom only holds so much weight with them – even at a time when interest rates are far from the lows we’ve seen over the last decade. In turbulent times, people look for certainty. In lending, that means looking to lenders they can trust and those they know will treat them fairly when the going gets tough. If you can balance the opportunity afforded by your brand with interest rates then you’re going to win with borrowers.”
Six in 10 (59%) are worried about finding an affordable rate when their current deal comes to an end, with people more likely to switch in 2024 (80%) as in 2022 (60%). Certain groups are more likely to find it difficult to find a financial product that matches their financial situation. Carter said:
“The role that AI could have in opening up the mortgage market to those who are worried about their rates or individuals who are typically excluded from the market is clear. For example, research shows that half (49%) of consumers would be pleased to see green lending innovations, such as lower mortgage rates tied to household energy efficiency. Lenders need to use technology to rapidly innovate and launch much needed products that will support people from a range of backgrounds and with vulnerabilities.”
The adoption of Open Banking certainly seems to be growing, with 65% of people considering giving a lender temporary access to their transaction history if it could lead to a more personalised rate – up from 60% in our 2020 report4. The implementation of Open Banking technology from lenders certainly makes customer interactions more seamless, through spending less time gathering data and more time understanding how to support customers. This suggests that whilst there is growth potential, winning over consumer trust will be essential this year.
Two in five borrowers (39%) say that green credentials are important when it comes to making borrowing decisions, according to the 2023 report. This is slightly less than 2022’s report where almost half (45%) cited environmental credentials as important. Commenting on the report, Alison Jessup, CEO of carbon negative finance firm, Canefin said:
“We know that high upfront costs is the number one barrier to green home improvements, we therefore need green lending innovations to help break down this barrier. Some innovative ownership models such as Solar Subscriptions and Leases have emerged in Europe and the US and we’re now starting to see these introduced to the UK. However, these have not been without their problems and further innovation is needed to improve the outcome for the customer. We’re also starting to see homegrown innovation within this space. Later this year, we are looking to launch the first Carbon-Linked Loan, which offers borrowers a discount on their loan APR using proceeds from the sale of carbon credits associated with the loan.”
The popularity of BNPL is particularly a concern for vulnerable groups who, the report reveals, are up to twice as likely to use BNPL. Over half of those who have a mental health condition (55%) and those who have a cognitive disability (52%) have used BNPL compared to just one in three (34% / 36% respectively) people who do not. Previous research suggests that the uptake of BNPL among these groups is in part linked to impulsive tendencies linked with their conditions.
People with certain cognitive disabilities may also struggle with accessing and understanding complex documentation usually associated with finance applications. The report reveals that people who have disabilities, mental health conditions or longstanding health conditions are up to 27% less likely to have had a credit card in the last five years.
BNPL is also more prominent among ethnic minorities, with six in 10 (60%) ethnic minorities having used it to borrow money compared to just one in three (35%) white people. Research suggests that people from ethnic minorities are more likely to seek help from financial providers, but BNPL allows these groups to bypass systems and processes that have historically been exclusionary. The report also reveals that they, as well as people with cognitive disabilities and mental health conditions, are more than twice as likely to rely on family and friends for a loan indicating mistrust, exclusion and a need for further support for these groups.
There are a wide range of reasons people are borrowing money, according to the report, ranging from neurodivergent diagnosis (3%), IVF treatment and gender reassignment surgery (2%) to injectables (2%) and spray tans (2%). While these may seem like small numbers, it represents between 1.2 million and 1.8 million people in the UK.
Top lending predictions for the next decade revealed
- Rapid processing driven by AI: Expect widespread adoption of AI and automation to streamline loan applications and risk assessment, enabling faster approvals, a reduction in costs, and the more personalised experience many borrowers crave.
- Personalised products: Lenders will increasingly take tailored and specialised approached to lending to meet diverse borrower demands. Lenders will need to move fast to launch innovative products and to do this they will need flexible platforms to maximise relevance to different customer segments. Our research shows some support for solutions ranging from parent payment plans, to counselling support for vulnerable customers.
- Open banking will normalise: Despite some concerns about sharing data identified in our research findings, Open Banking is likely to be normalised among people under the age of 50 as borrowers are won over by the potential it offers to access to tailored products and potentially better rates.
- Friction ‘less’ rather than friction ‘free’ embedded finance: Popularity of embedded finance and the friction ‘less’ journey will continue to grow. However, BNPL will likely be brought to heel by the regulator in the UK and responsible, positive friction in the application process will be encouraged.
- Responsible brands will dominate borrowers’ decision making: While interest rates will always be an influencing factor when it comes to borrowing, growing social consciousness, particularly among younger age groups, mean that people are increasingly likely to choose lenders that are taking environmental and social responsibilities seriously.
