Consumer lending has been on the rise in Sweden over the past few years, with borrowers increasingly turning to challenger solutions such as Klarna and Brocc. Rather than turning to traditional banks for consumer loans, Swedes are looking at new loan providers to finance their purchases.
In this article, we will explore the reasons behind this shift, the rise in consumer lending and what traditional banks can do to gain market share.
Consumer lending is an upward trend
Today’s consumers are increasingly using credit to finance everyday purchases, such as clothes and furniture, adding to big-ticket consumer credit purchases such as cars. This increase has been facilitated by the availability of fast and easy digital lending solutions.
In Sweden, consumer lending has grown steadily since 2015. Between 2012 and 2018 consumer lending grew annually by 9% with a total loan volume of €130 billion in 2018. By 2016 58% of consumer loan were borrowed from non-traditional lenders, indicating that consumers were looking for new options to borrow.
An increase in credit agreements also indicates a growing demand for consumer loans. The number of consumer credit agreements increased by 6.4% in 2020 and the total volume of consumer credit in Sweden was SEK 535 billion (€47 billion) in 2020, an increase of SEK 42 billion (€3.7 billion) from the previous year.
Why consumers are choosing new providers
Digital-first lending platforms and banks that embrace digital customer journeys offer quicker loan approval processes, flexible repayment options, and personalized interest rates, making them more attractive to consumers. Additionally, digital-first lenders have lower overhead costs, which enable them to offer more favorable loan terms.
Traditional banks in Sweden has been put at a disadvantage for not being fast enough to adopt digital processes. Consumers are looking for more personalized and convenient lending solutions, which some traditional banks have been slow to provide. Digitally savvy Swedes expect more from their finance providers and banks can increase appeal with a more seamless applicant experience.
Traditional banks are missing business opportunities
Digital lending has significantly matured in Sweden with a more personalized and convenient service offered to consumers. Digital-first lenders are better able to target and meet the needs of niche markets, whereas traditional banks have previously appealed to a more general audience, missing out on new and underserved opportunities. This shift means that banks need to reconsider their lending strategies and invest in digital platforms and easy-to-use flows to remain competitive in the market.
What banks need to do to attract consumer borrowers
To attract consumers and remain competitive, traditional banks need to invest in digital platforms with an easy application flow with the focus on a good user experience and a quick loan approval. They need to offer personalized and convenient lending solutions that appeals to the greatest extent. By creating a process that is unique and without friction for the user, lenders will be better able to match their customers’ needs and ultimately increase their market share in consumer lending.
How Monthio can help traditional banks improve the customer experience
Monthio is a creditworthiness assessment solution for banks and other financial institutions that makes the process of applying for a loan quicker and easier for both the borrower and lender.
Monthio’s intuitive creditworthiness solution uses open banking and other financial data to provide a 360 financial overview in real-time, including income and expenses verification and extensive insight into risks and warnings. This means that loan applicants do not manually have to enter this information, decreasing the effort needed to finish an application significantly.
All the consolidated data is presented in one easy-to-use dashboard, meaning quick and easy decision making for credit advisors at banks or other financial institutions.