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All You Need To Know About Consumer Finance in 2024

Author : Priyanka | May 22, 2024

Many people find themselves in a financial bind or urgent need of money. Obtaining a loan from money sharks can be problematic due to their exorbitant interest rates and the risk of fraudulent activities resulting in financial loss. In this context, consumer finance offers a comprehensive solution to empower individuals to take control of their financial status. It provides accessible resources, guidance, and tools to help consumers make informed decisions, and manage their budgets while offering easy installment options. This blog delves into the realm of this innovative financing approach and explores trends and developments in this remarkable field.

What is the Meaning of Consumer Finance?

Consumer finance, or consumer financing, refers to the sector of finance that deals with lending money to individuals for personal or household use. It involves providing credit to consumers through various financial products, such as credit cards, loans, and mortgages. This finance enables individuals to make purchases immediately and pay off the balance over time with interest. As it covers all point-of-sale finance, including credit cards and installment loans, most customers avail of it significantly. According to Kings Research, the consumer finance market is expected to be valued at $1,654.34 billion by 2030.

Why is Consumer Finance Important?

Consumer financing is important for both consumers and businesses. For consumers, it allows them to purchase items that they may not be able to afford with immediate funds. It provides individuals with the ability to manage their cash flow by spreading out payments over time. For businesses, offering consumer financing at the point of purchase can help convert passive browsers into active buyers. It helps businesses increase sales and customer satisfaction. The main objective of consumer financing is to boost conversion rates, sales, revenue, and customer satisfaction.

Key Types of Consumer Finance

Consumer financing comes in various forms, including

  1. Credit Cards: Credit cards are a commonly accepted form of payment that allows consumers to make purchases and pay off the balance over time with interest.
  2. Loans: Loans can be used for various purposes, such as personal loans, auto loans, and mortgages. They provide consumers with a considerable amount of money that is repaid over a specified period with interest.
  3. Store Credit: Store credit cards are credit cards offered by specific merchants that provide benefits for purchases from that merchant, such as cashback or low interest rates for a certain period.
  4. Installment Plans: Installment plans allow consumers to make purchases and pay for them in fixed monthly installments over a specified period.

Novel Trends in Consumer Finance

Below are the latest trends in the consumer financing sector:

  • Rise of Personal Finance Apps

The development of personal finance apps is on the rise due to the convenience they offer. To effectively manage finances, many consumers have turned to these apps as a practical solution for budgeting and financial management. One of the best and most recognized apps is Copilot, a subscription-based personal finance tracker. Copilot analyzes activities, including recurring payments, and displays 5 to 10 budget score categories of saving and spending.

  • Increased Adoption of Digital Technology

The financial sector is rapidly adopting digital technology. Cash payments, in-person meetings with financial consultants, and traditional banking methods are fading, while digital banking and money management technologies are becoming more prevalent. While digital transactions are vulnerable to money theft, robust security measures for consumer finance accounts are required.

Recently, on April 20, 2024, the U.S. Consumer Financial Protection Bureau (CFPB) proposed regulating tech giants' digital payments and smartphone wallet services, arguing they lack consumer safeguards and require bank-like supervision.

Will This New Rule Mitigate the Frauds in RIAs?

A new kind of wealth management strategy, known as a Registered Investment Adviser (RIA), is becoming the preferred choice for many consumers. The Securities and Exchange Commission regulates RIAs and has a fiduciary duty to put their clients's interests first when making financial decisions. However, it poses the risk of investing in illegal earnings associated with fraud, foreign corruption, and tax evasion.

In February 2024, the Financial Crimes Enforcement Network (FinCEN) proposed a new rule to combat illicit finance and national security threats in asset management, similar to broker-dealer requirements since 2001. The proposed rule would expand the scope of the Bank Secrecy Act (BSA) to cover a wider range of financial institutions, eliminating uncertainty in compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) needs.

Sezzle's New Strategy to Promote BNPL Timely Payment

Merchants are responding to consumer demands for Buy Now, Pay Later (BNPL) options. Many merchants are planning to add BNPL options, although some financial experts caution against irresponsible rebates associated with this payment method.

To address this tendency and promote the BNPL, several consumer finance companies are making new strategies. One such example is Sezzle, a payments platform, that has launched Payment Streaks. It is a feature that allows users to earn loyalty tiers through consistent, on-time payments. The program counts each successful payment as a "streak," and allows users to advance to higher loyalty tiers. The program also offers benefits like monthly giveaways and bonuses for referring friends to Sezzle. This platform has become popular among older generations, with 81% of baby boomers and seniors highly satisfied with it. The program's gamification approach to responsible payment behaviors aims to encourage users to stay on top of their bills. 

In a Nutshell

Consumer finance plays a crucial role in modern society, providing individuals with the necessary tools and resources to manage their finances. It encompasses various aspects, such as loans, credit cards, and investment products, all aimed at meeting the diverse financial needs of consumers. By understanding and utilizing novel and safe financing practices wisely, individuals can achieve their financial goals, improve their financial well-being, and make informed decisions to secure a stable future.

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