Embedded Lending: Great Way to Buy Your Groceries?
Embedded lending is a loan of last resort for many but don't tell Visa.
Visa tells us how great embedded lending is while admitting that the biggest use case is in buying groceries.
If that doesn’t show that something is seriously wrong, nothing does.
Meanwhile, Visa spins this embedding data any way it wants and proudly claims that 17% of consumers are affluent or high-income.
What it doesn’t tell you is who the other 84% are, so I looked!
The US’s Consumer Finance Protection Bureau tells us that for BNPL users it isn’t the affluent:
The profile of the typical US BNPL customer is someone who makes more than $20,000 a year but no more than $50,000, and they’re more likely to be a combination of Black, Hispanic, female, and a renter.
Or the BIS who recently found that:
Compared with traditional consumer credit, BNPL users are typically younger, with less education, more debt, lower credit scores and higher delinquency rates.
So, Visa cherry-picks its data to show that embedded finance is just great, as users buy groceries.
👉TAKEAWAYS
Why people use embedded lending:
Insufficient lending options
Across major economies, deep satisfaction with available credit options is not yet widespread, meaning there is an opportunity for providers that step in.
50%: Share of consumers who are highly satisfied with the availability of credit and lending products that merchants or financial institutions currently offer
Embedded enthusiasm
More consumers are highly interested in embedded lending products than currently use them.
43%: Share of consumers very or extremely interested in switching to a provider that offers embedded lending options
Cash flow tool
Strategic credit users are likelier than the average consumer to have used embedded lending.
21%: Share of consumers who generally use credit strategically (that is, for rewards or budgeting) who recently used embedded lending.
Low credit limits
The most common friction-embedded lending users noted was that credit limits were lower than needed.
37%: Share of embedded lending users who cited low credit limits as a pain point
👊STRAIGHT TALK👊
Buried in the report is the reality of embedded lending that Visa can’t spin into a story of cash management:
Between 16% and 24% of consumers in five of the six countries indicate that they mainly use financing out of necessity, suggesting a degree of short-term financial pressure.
So, while Visa touts that 21% of users will embed lending strategically, it buries the reality that roughly 20% of users use it as a loan of last resort.
Let me say that embedded lending isn’t universally bad! It can be a great tool, and I have seen first-hand the good and bad it has done in China.
Still, Visa's report cherry-picks the statistics to make it sound as though embedded lending is the greatest product ever offered.
The fact that most of this lending is done with minimal underwriting doesoms it to be the realm of the uneducated and high-risk.
Let’s call this what it is: another way to milk the poor.
Thoughts?
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