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How is the current state of the global economy affecting consumer finance?

by uma
Editorial & Advertiser disclosure

 

Rising energy prices, post-pandemic supply chain issues and the war in Ukraine are causing the worst cost of living crisis the world has seen in decades. The financial strain caused by these macro conditions is impacting consumers and households across the globe like never before.

In Western economies, we’ve seen consumers are increasingly looking for credit to cover the ever-spiralling costs of living, with inflation at an all-time high and household bills at the highest rate they’ve been for years. The approach to consumer finance in India is different. 

Many consumers still struggle to access credit from traditional banks and finance providers. Rather than using credit to cope with rising household builds, in India, it’s used to bridge the $2 trillion credit gap by enabling consumers to access credit through ‘check out finance.’ 

Once consumers have demonstrated responsible use of the product and have built their track record of managing credit, they increase their credit line and provide access to other products such as personal loans.

Credit, when used responsibly, can be a valuable tool to improve financial inclusion and facilitate access to mainstream products and services that were previously unattainable. We can expect the demand for credit to increase throughout the current period of financial instability. 

However, this needs to go hand in hand with the tools that allow consumers to manage their finances, so we can also expect to see a rise in personal finance management platforms. This will allow for the promotion of responsible spending, facilitate repayment and encourage the right financial behaviours, all of which will be vital for consumers in the current economic circumstances.

How is the buy now, pay later (BNPL) market evolving as a result?

In developing markets, BNPL is often used as a means of providing banked customers with an alternative payment method. The underserved nature of consumers means that BNPL is often used by those with strong affordability criteria but with thin files or no prior experience with credit. In this context, the product is a force for good, enabling access to credit to be provided in a small and controllable way and providing an entry point to formal finance. 

Responsible innovation also means that BNPL providers in developing markets need to protect consumers appropriately and provide the necessary tools and resources to manage their money effectively and promote responsible financial behaviours, which has never been so crucial in the current economic circumstances. 

How is technology driving growth in the consumer finance sector?

Rapidly improving digital infrastructure and the rise of eCommerce have changed consumer behaviours, aspirations and financial needs. However, in developing economies too many consumers are unable to access the products that from an affordability standpoint they should qualify for. 

Technology is the solution to this challenge and by harnessing the power of big data, we can address markets underserved by traditional providers. Big data can help to address issues such as the consumer credit gap, which ultimately will help drive economic growth. But, with innovation comes responsibility and underserved customers must be provided with the tools and resources that enable them to manage their finances effectively.

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