Danielle Sesko, director of product management and innovation at TruStage, sent in the following view on possible difficulty for digital lenders come January 2024.
Many experts are predicting a banner year for digital commerce, this holiday season with National Retail Federation analysts suggesting holiday sales growth will hit pre-pandemic levels. While good news for retailers, this increase could spell trouble for digital lenders and their borrowers.
With recent U.S. retail sales increasing more than projected, holiday spending is poised to continue this trend. In turn, this boost could possibly translate to an increase in defaults and delinquent payments, especially for digital lenders. As more consumers turn to non-cash payments for their holiday shopping, for many that also means loans at checkout. The proliferation of payment options like buy now, pay later, peer-to-peer lending platforms and other small-dollar digital lending methods have risen significantly over the last few years. While they have provided much greater access to credit for more people, the defaults on these payments have also continued to be a major concern.
The reality is digital lenders face some unique challenges related to defaults, which can impact everything from their current liquidity to future funding. An effective approach they can take to help mitigate default rates is to employ an embedded loan payment insurance strategy. By implementing digital payment protection for all loans, they could better protect themselves against any domino effects triggered by defaulting borrowers for little costs and no additional friction in the loan process. This also positions lenders to keep extending credit to borrowers with lower rates, benefiting a broader range of customers this holiday season and beyond.
Note: The views expressed here are those of the author and do not necessarily represent the views of TruStage. TruStage™ is the marketing name for TruStage Financial Group Inc. its subsidiaries and affiliates.
Do your merchants rely heavily on BNPL and other alternative lending options? Does this pose a risk to them and to your business? Weigh in on this or other relevant topics at greensheet@greensheet.com. 
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
Prev Next
