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Article 19 Dec 2023

5 Critical Consumer Lending Trends 2024

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Consumer lending trends in 2024, like the lending landscape will continue to change, mirroring the rapid evolution of global economic conditions. As high interest rates stabilise and open banking innovations disrupt traditional banking models, understanding the forthcoming market becomes crucial.

Lenders must navigate a complex matrix of regulatory changes, consumer behaviour shifts, and technological advancements to secure a competitive advantage and foster sustainable growth.

To help you stay ahead, we’re covering some of the most essential consumer lending trends you need to know going into 2024. Trends that include:

  1. High interest rates strain affordability
  2. Profit potentials amidst lowered loan appetite
  3. Intensifying regulatory constraints
  4. The surge in green lending
  5. The impact of Account Information Services (AIS) on consumer lending trends

1. High interest rates strain affordability

Interest rates from creditors and banks are increasing. For example, the ECB interest rate reached 4.5% in September 2023, an all-time high and a stark change from the negative rates seen in 2019, representing a change across the board. How will this affect lenders going into 2024?

Strain on consumer debt affordability

Interest rate hikes in the last two years have significantly impacted consumer debt affordability. Higher borrowing costs mean larger monthly repayments, particularly for those with variable-rate loans. This situation is causing financial stress among consumers, potentially leading to increased defaults and a more cautious approach to new borrowing.

Heightened lender creditworthiness criteria

Due to the increased economic risk, lenders are enforcing stricter creditworthiness criteria. This means higher standards for loan qualification, focusing more on credit scores, debt-to-income ratios, and employment stability. Consequently, access to credit is becoming more challenging, especially for those with weaker financial backgrounds.

Consumer response to stringent borrowing conditions

The stricter borrowing conditions have led to changes in consumer behaviour across the EU. There’s a noticeable shift in new consumer loan volumes, with some regions seeing a decline in borrowing, likely due to wariness about new debt. Additionally, varying regional non-performing loan ratios indicate differing levels of financial stress and risk of defaults, highlighting the need for tailored lender and policymaker strategies in this evolving landscape.

2. Profit potentials amidst lowered loan appetite

The financial services sector has more opportunities to profit from high interest rates. So, while loan demand has decreased in recent months, firms will need to compete on loan disbursement speeds to attract and retain responsible borrowers looking for easy credit access.

Profit gains and diminished demand

There has been a paradox of shrinking credit interest from consumers versus the prospects of increased earnings for lenders. This isn’t just limited to payment credit; it extends to areas, especially in the UK, for car financing and home improvement lending.

Accelerated credit disbursement as a competitive edge

Financial companies are adapting to the competitive market by prioritising alternative strategies such as accelerated credit disbursement. This involves integrating advanced technologies and forming strategic partnerships, particularly with fintech firms, to streamline loan processing. 

Lender adaptations to new borrowing behaviours

Creditors are now tailoring their services to align with evolving borrower expectations, such as personalised credit options depending on risk, spending habits and more. With Open Banking solutions like Instant Payments, there is a heightened opportunity to gain transparent data to fuel personalised lending.

3. Intensifying regulatory constraints

New regulatory directives are coming into place as the world of finance matures into the digital age. But what are the changes on the horizon, and how do they affect lenders?

The EU Consumer Credit Directive

Set to take effect in 2025, the EU Consumer Credit Directive is prompting financial firms to progressively enhance their compliance strategies. Over the next 2-3 years, these institutions will focus on aligning their operations with the new directive’s requirements, ensuring responsible lending practices and enhanced consumer protection in the evolving financial landscape. 

The UK Consumer Duty Act’s expanded reach

Similar initiatives in the UK via the Consumer Duty Act signals similar regulatory demand for responsible and proactive financial services. Namely, those that protect consumers’ financial health and empower their long-term goals.

Aligning financial products with new regulations

EU financial services firms are under increased pressure to revise their product portfolios in response to the upcoming PSD3 regulatory standards. This necessitates a strategic overhaul of their offerings to ensure compliance and maintain market competitiveness. 

4. The surge in green lending

Mounting awareness of sustainability issues is prompting regulators to explore green financing solutions to support the transition to a sustainable economy. Here, we’ll talk about key milestones in the EU’s climate change targets and the EBA’s ongoing work on a framework for green loans and mortgages.

The European Union and the UK’s Sustainable Finance ambitions

The EU and the UK’s climate objectives have had a distinctive influence on financial institutions, increasing the promotion of green loans and sustainable mortgages across the area. In fact, 52% of banks view environmental and climate change as an emerging risk over the next five years.

Consumer shift towards eco-conscious investments

There is a consumer trend towards environmentally responsible investment and borrowing opportunities. Not only are lenders now facing increased regulatory pressures from the EBA and the UK government, but consumers are starting to further analyse where their credit is coming from. 

5. The impact of Account Information Services (AIS) on consumer lending trends 2024

Open banking-powered Account Information Services (AIS) are reshaping consumer lending trends in 2024, offering streamlined processes and enhanced efficiency. 

Streamlining Loan Processes and Incorporating VRPs

AIS technology has revolutionised loan application and underwriting processes, enabling rapid analysis of income and expenditure. Additionally, the emergence of Variable Recurring Payments (VRPs) in the UK, allowing more flexible control over recurring payments, further impacts the lending landscape, requiring lenders to adapt their strategies to accommodate these new payment dynamics.

Enhancing Loan Monitoring and Customer Support

Beyond loan origination, AIS is crucial in ongoing loan monitoring. It allows lenders to proactively identify potential distress in loan repayments, enabling early intervention and support for borrowers, thereby fostering a more responsive and responsible lending environment.

Adapting to Regulatory Requirements

The increasing reliance on AIS technology in lending necessitates strict adherence to regulatory standards, especially in IT governance and security. Lenders must ensure robust system management and compliance to safeguard operations and prevent customer detriment, highlighting the need for continuous assessment and management oversight. 

Find out more about AIS in our Open Banking Explainer.

Stay up-to-date on consumer lending trends 2024 with Brite

Keeping on top of the trending areas of consumer lending is crucial as we move further into a cashless economy. Check out our Consumer Lending Explainer for the latest innovations.

Brite is a leading second-generation fintech based in Stockholm, Sweden. Our proprietary Instant Payment Network enables seamless money flows, even where open banking infrastructure is lagging. Additionally, Brite Data Solutions enables consumer lending businesses to take advantage of AIS and other benefits of open banking.

With instant access to more than 3,800 banks in 26 European markets, we can help drive new growth in your business. Get in touch today to learn more about Brite Payments and stay current on all things payments.

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