Page 8 - GS231201

ReadersSpeak

Are defaults looming for digital lenders?

anielle Sesko, director of product manage-
ment and innovation at TruStage, sent in
the following view on possible difficulty for
D 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 re-
tailers, this increase could spell trouble for digital lend-
ers and their borrowers.

With recent U.S. retail sales increasing more than pro-
jected, holiday spending is poised to continue this
trend. In turn, this boost could possibly translate to an
increase in defaults and delinquent payments, especial-
ly 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 lend-
ing 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 challeng-
es 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 strat-
egy. 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 Finan-
cial Group Inc. its subsidiaries and affiliates.

BNPL and your merchants
Do your merchants rely heavily on BNPL and other al-
ternative 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.

8