2 key trends in the global lending and payment sector

By Puja Sharma

The global lending and payments market size is expected to grow from $7.83t in 2021 to $8.68t in 2022 at a compound annual growth rate (CAGR) of 10.8%. The global lending and payments market share are then expected to grow to $12.55t in 2026 at a CAGR of 9.7%.

Major players covered in the global lending and payments industry are China Construction Bank, Agricultural Bank Of China, JPMorgan Chase & Co., Bank of China, Industrial and Commercial Bank of China, Bank of America Corporation, Banco Santander, Citi Group, Wells Fargo & Company, and State Bank of India.

The lending and payments market forecast shows that artificial intelligence is gaining prominence in the payments sector due to its various applications allowing businesses in synthesizing data to improve customer experience.

Artificial Intelligence refers to the development of computer systems that can perform tasks using human intelligence. AI enables payment companies to improve their operational efficiency such as reducing processing times, error-free insights, and increased automation.

Increase in the usage of AI applications

To monitor payment transactions from the point of payment message to the payment gateway, banks and NBFCs are using AI-based applications.

Artificial Intelligence is gaining prominence in the payments sector due to its various applications allowing businesses in synthesizing data to improve customer experience. AI refers to the development of computer systems that can perform tasks using human intelligence.

AI enables payment companies to improve their operational efficiency such as reducing processing times, error-free insights, and increased automation. Many banking and non-banking institutions are using AI applications to monitor payment transactions from the point of payment message to the payment gateway.

For example, AI-enabled application chatbots are being adopted by payment firms as they can understand customer language and respond to customer queries on a real-time basis. AI machine learning is significantly used to improve fraud detection and reduce false transactions. For instance, according to the latest Economist Intelligence Unit adoption study, 54% of Financial Services organizations adopted AI for payments for strengthening customer relationships.

Growth of alternative lending

Alternative gives loans to individuals and businesses who cannot access loans through traditional banking platforms. According to the lending and payments market analysis, alternative lending is becoming popular mainly because offering commercial loans to small businesses is deemed unprofitable by traditional banks.

Alternative lenders rely on advanced technologies such as big data to obtain data-driven insights, which can be used to quicken the overall lending process. Alternative lenders have a clear advantage over banks when it comes to approval ratings. They can assess a higher number of factors that determine the creditworthiness of an applicant. Whereas banks only look at the financial statements and previous loan repayment records. However, that data is often not a good indicator of one’s financial health.

This allows alternative lenders to earn profits on loans that are conventionally considered unprofitable by traditional lenders. Examples of alternative lenders include Lending Club and OnDeck.

Traditional banks have also been active in this space and have been integrating state-of-the-art processes into their banking operations. Banks have introduced electronic payment and online services for a while now. Many banks have partnered with FinTech services to provide a better customer experience. However, banks deliver a different set of financial services than non-banks and alternative lenders. They must abide by government regulatory policies and cannot be as flexible as FinTech companies.

With the rise of FinTech firms and digital lending platforms, alternative lending is here to stay. When it comes to business lending, traditional banks still have the majority market share, but their growth has plateaued. It has now become simpler for non-banking firms to digitize their lending process.