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67% of lenders indicate that they have been affected by the rising costs of capital
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47% of lenders identify increasing profitability as their top strategic priority in 2023, but growth remains a priority, particularly in emerging markets
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To remain competitive, 57% of lenders plan to invest in enhancing their ability to add new data sources
A new survey by Taktile, the leading automated decisioning platform, found that 2023’s challenging macroeconomic environment is forcing lenders to adopt new strategies as they pursue dual goals of growth and profitability. While many companies are struggling to adapt, modern, agile lenders are closer to achieving their goals, indicating a path forward for the industry.
“The global economy as it stands today is vastly different than it was a few years ago. While the high interest rate environment has challenged everyone within the financial sector, it has been especially challenging for new market players, like fintech lenders, who now face a higher cost of capital”
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Taktile’s 2023 State of Lending Report surveyed credit and risk executives from around the world to offer unprecedented insights into how the recent macroeconomic changes impact lending operations and how lenders have adjusted their business strategies to respond to the new climate. This first-of-its-kind report also outlines levers lenders can pull to drive profitability and highlights best practices from leading lenders with agile, proactive approaches to risk selection.
“The global economy as it stands today is vastly different than it was a few years ago. While the high interest rate environment has challenged everyone within the financial sector, it has been especially challenging for new market players, like fintech lenders, who now face a higher cost of capital” explained Dr. Robin Greenwood, Professor of Finance and Banking. “Taktile’s research report offers guidance to credit and risk teams on how to navigate the challenges of the current market, and provides a good overview of the technical requirements involved in credit provision.”
Below is a glimpse into the findings:
In a difficult macroeconomic environment, lenders seek profitability first, but growth remains a priority
47% of lenders identified improving profitability as the top strategic priority this year. This transition is driven by the rising costs of capital and increase in default rates. 67% of lenders indicated that they have been affected by the rising costs of capital and 43% reported that increased interest rates have negatively impacted their return on capital. While profitability is paramount, many lenders still plan to pursue growth, particularly in emerging markets. In Africa, 75% of respondents plan to increase their growth rates by more than 10 p.p. In 2023.
Agile, data-driven lenders best positioned to succeed in current environment
According to the survey, lenders who make credit policy changes the fastest and optimize their policies most frequently are more quickly adjusting to the new economic environment and outperforming the competition. Leading lenders are embracing automation and sophisticated credit decision infrastructures to empower their credit teams to drive change without the assistance of engineering teams.
Yet, majority of lenders are held back by rigid credit decision infrastructures
While some leaders are succeeding, survey results indicate that most lenders are hampered from improving their performance by poor decision infrastructure. 41% of lenders name introducing new data sources their biggest obstacle, 41% find building and deploying predictive models challenging, and 39% report struggling with the right degree of automation. A deeper look at this revealed a key issue: credit teams are not sufficiently enabled to self-serve when building and optimizing their credit policies. 71% of respondents still require engineering support to adjust their credit policies.
Decision infrastructure improvements are key investment priority for lenders
In light of these challenges, many lenders recognize they must improve their decision infrastructure. The primary area for investment is in enhancing the ability to add data sources, with 57% stating their desire to improve their ability to integrate new data sources in a bid to increase risk assessment accuracy. In a sign that lenders recognize the importance of agility, almost 40% want to improve the frequency of their policy iteration.
Lenders remain optimistic amidst challenging environment
Despite economic volatility, 84% of lenders remain optimistic about the future of the lending industry. Customer demand for lending products is still high, with 42% of respondents indicating that the current interest rate environment has had a positive impact on demand. By adopting modern decision engines and new data sources, lenders are better able to assess borrower risk, cater to untapped customer segments and grow more profitably.
“Lenders have had to achieve the unachievable: deliver rapid growth while also improving profitability,” explained Maik Taro Wehmeyer, CEO and Co-Founder of Taktile. “It is challenging to pursue these two goals in tandem, but leading lenders show it is not impossible. Our survey highlights that lenders who have invested in technology that empowers them to act proactively and experiment with their policies are not only outperforming their competitors and succeeding in this new environment–they are shaping the next decade in lending.”
