Online Loans: Trends That Are Changing The Market

Online Loans Trends That Are Changing The Market

CEO of Business Finance Consultants, Kevin Harper, speaks about new trends that are changing the face of the short-term Internet loan market this year.

Demand for online short-term loans on the rise

The demand for short-term online loans continues to grow at an increasing pace. So the number of loan contracts executed increases every month. Cash Depot Omaha report that they issued twice more loans in the first half of the year than in 2020. The number of contracts is growing proportionally (2 times). Last year, the dynamics of growth in the volume and number of loans was less: 1.33 times.

There are several reasons for acceleration, and they are of different levels. Against the background of restrained but still positive socio-economic signals – a decrease in unemployment, a slowdown in inflation, an increase in real incomes of the population – citizens’ confidence in the future is growing. This, in turn, stimulates consumer activity, which more often attracts people to the borrowed funds market. Accumulated savings fatigue further stimulates the process. At the same time, bank lending, which is also going uphill, is still unable to take on the entire array of consumer demand – both due to higher borrower requirements and an orientation towards more significant amounts.

The influence of intramarket factors is also evident. Last year’s series of microfinance reforms resulted in an increase in the attractiveness of the market for clients in terms of the overall image and specific conditions offered. As a result, the number of short-term loan agreements is growing: both in general with individuals and in the payday loans (PDL) online segment, especially. In the latter case, although there are still no official statistics, we can confidently state that the dynamics are traditionally ahead of the general market dynamics. Affected by the technological factor (online is turning into a predominant channel for obtaining financial services) and customer flow (only microfinance institutions can legally work online, and they are the ones who take over most of the MFI clientele leaving the market).

Finally, customer loyalty plays a significant role. Once convinced of the effectiveness of cooperation with a particular company (we are talking about large microfinance institutions), the overwhelming majority of borrowers contact it afterwards. Moreover, such decisions are often backed up by more favorable conditions than during the initial application. Therefore, it is not surprising that the activity of repeat borrowers (as well as their number) is also growing. If the number of loans issued to new customers in the first half of 2020 increased by 31% compared to the previous one, then to repeated ones – twice as much, by 62%. And this share is gradually increasing.

Small business makes a choice in favor of Internet technologies

The results of the 2020 year allow us to speak about other, more private but no less remarkable market trends.

Thus, more and more borrowers (mostly young ones) are applying for online loans via mobile devices. According to the latest data, there are already about 75% of relevant online applications. Young borrowers are more mobile (both geographically and technologically) and are prone to urgent spending “here and now”. Therefore, a smartphone that is always at hand is optimal for them in most cases. By the way, the above is confirmed in the new subtrend. Even more convenient and efficient mobile applications of microfinance online services are dramatically increasing in importance this year. Statistics from Financial Times suggest that lenders that launched their applications only at the end of last year have already processed about 10% of applications through it. By the end of this year, given the existing dynamics and taking into account the expansion of functionality, the indicator promises to exceed the 15% mark, and by the end of next year – to reach the 50% mark.

Finally, we would like to note such an interesting moment as a change in the psychological profile of new borrowers. As before, the number of those interested in online loans is much higher than real clients. However, of those who still take loans, there are fewer people who are inclined to haste and conversely, who are hesitating for a long time. An increasing number of clients prefer to make financial decisions within 1-3 days, thoroughly weighing all the pros and cons but not delaying the choice.