Investing in the Digital Lending Market 2023
Img1. Investing in Digital Lending Market 2023 – Exaloan AG
What is digital lending?
Digital lending/peer-to-peer (P2P) lending/online lending is a remote and automated process of borrowing and lending money via online platforms. These platforms connect borrowers and lenders directly, bypassing traditional financial intermediaries like banks.
The prevalence of digital lending
The popularity of digital lending has been growing over the last decade, with the rise of FinTech and digital transformation in the financial services industry.
In the early 2010s, a number of online P2P lending platforms emerged, offering individual investors the opportunity to lend money directly to borrowers. Since the convenience for both lender and borrower, the push from the global financial crisis, and the good returns to investors, there were more and more digital lending platforms showing up in the market.
In the following years, traditional financial institutions, such as banks and credit unions, began to embrace digital lending, and the industry continued to grow and evolve. According to EY Global Banking Outlook 2022, many SMEs turn to using digital lending services for a simpler and faster lending process and better customer experience. Traditional financial institutions have realized that digital lending is an opportunity not to be missed for competitive differentiation.
Today, digital lending is a well-established and rapidly growing sector of the FinTech industry, with a wide range of products and services available to borrowers, lenders, and investors.
Compared with traditional lending, digital lending has the following advantages:
Digital lending platforms are typically more convenient than traditional lending institutions. It allows borrowers to apply for loans and manage their accounts online or through a mobile app. Borrowers don’t have to repeatedly visit a brick-and-mortar location during the lending process.
- Speed and cost-efficiency:
Digital lending platforms often offer faster loan approval times than traditional lending institutions, which usually will take weeks or even months to process a loan application.
Meanwhile, it also helps lenders save money by reducing overhead costs. Traditional loan processing requires much human labor to handle the paperwork and other tasks, and lenders must pay those costs. Lenders only need to hire limited staff to manage the entire process of online lending.
- Increased accessibility and a larger potential market:
Online lending allows lenders to reach customers who might not otherwise consider them as potential borrowers, including people with bad credit, those living outside major metropolitan areas, and even people who are self-employed.
- Transparency and easy to be analyzed:
For borrowers, digital lending platforms generally provide more transparency in terms of fees, interest rates, and loan terms, which can help borrowers make informed decisions about their financing options.
From the investors’ perspective, online lending simplifies loan disbursement and creates a repository of application, underwriting, and funding data. When the power of analytics is added to the mix, investors will get considerably more efficient risk management and better portfolio performance.
The digital lending industry is a global market. Digital lending service is available in many countries around the world.
As of 2022, the top 5 most significant markets for digital lending are the US, China, the UK, India, and Europe. Large and mature financial services, a supportive regulatory environment, and a high level of technology adoption are necessary conditions for allowing digital lending to emerge and grow within a market.
Digital lending in 2023 and other sectors in the FinTech industry
With the surging tides of central bank stimulus, globalization, and pandemic-related phenomena that had maintained widespread expansion across the FinTech sector, it is facing a variety of particular difficulties. As 2023 approaches, topics relating with money, compliance, regulatory requirements, and managing the rapidly evolving digital environment will be very important. In this article, we will talk about FinTech trends for 2023:
Digital lending will continue to grow:
Digital loans have been greatly influenced by FinTech startups. By leveraging on consumers’ desire for a frictionless experience while obtaining instant funds, FinTechs will emerge as a strong pillar for supporting SMEs.
Lenders in the FinTech sector will be crucial in repairing the economy. A new path in the financial industry is anticipated to be made possible by digital lending.
Mobile payments will become ubiquitous:
By 2023, mobile payment options will be available at majority point of sale. From vending machines to gas stations, retailers will accept cashless transactions as standard practice.
Even though there is still much to be developed, the path is evident. The future of payments, payment processing, and payment gateways will be represented by mobile payment technologies.
Blockchain will continue to grow:
While there’s no doubt that blockchain has been hyped as the future of finance, it’s also true that its potential is being slowly realized now. From the rise of bitcoin to the emergence of new applications such as smart contracts, blockchain will continue to grow for becoming an integral part of our lives.
Is it a good idea to invest in the digital lending market in 2023?
Yes, investing in digital lending is a good idea. And here are the reasons:
The digital lending market is expected to continue (rapidly) growing in the future, driven by factors such as the increasing use of mobile devices, advancements in artificial intelligence and big data, and a growing demand for alternative lending options. According to Statista’s forecast, the digital lending market size will reach 401.7 billion US $ by 2025.
Moreover, recession will BOOST the development of digital lending.
In times of recession, traditional lending sources such as banks may become more cautious about lending, making it harder for borrowers (especially SMEs) to secure loans. This could lead to increased demand for alternative lending options, such as digital lending platforms.
During a recession, digital lending platforms may also see an increase in borrowers who have been negatively impacted by the economic downturn, such as small business owners struggling to stay afloat. As a result, these platforms may have more opportunities to originate loans to borrowers who may not qualify for loans from traditional financial institutions.
Additionally, in a recession, traditional financial institutions may tighten their lending standards and may not be able to lend to certain borrowers who would have been approved before. This situation forces borrowers to find alternative lending sources.
However, we need to point out that the recession can also have a negative impact on the digital lending market, such as an increase in defaults and delinquencies among borrowers. This can lead to a loss of confidence among investors and lenders, which could lead to a decrease in loan origination and higher borrowing costs. To stop the rot, investors should be cautious and evaluate the investment in many different ways, such as credit risk, lending platform risk, regulation, the liquidity of the investment, and keep monitoring the performance of lending platform(s).
Overall, the digital lending market is poised for significant growth in 2023, and investors have many opportunities to profit from this trend. However, as with any investment, it’s important to research and invest wisely.
Exaloan is the leading technology provider for institutional investments in digital loans. Its mission is to close the global funding gap for individuals, entrepreneurs and SMEs by connecting institutional capital with digital lending platforms. By operating a global B2B marketplace, the company opens up digital lending as a new asset class.. As an independent agent and validator, Exaloan provides a fully digital investment infrastructure with a standardized risk assessment of each single loan through its Loansweeper™ platform. At the core of its business, Exaloan uses big data and predictive analytics to generate an independent real time credit analysis as well as dedicated insights and reporting for institutional investors, banks, and lending platform partners. Insights cover topics such as sustainability reporting, advanced portfolio analytics, and market research.
Behind Exaloan stands an experienced team with extensive know-how in the areas of quantitative portfolio management, capital markets, machine learning, and software development.
If you want to find out more, reach out to us.
We look forward to working with you!