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  • Frank Tian

9 Things to Watch in Consumer Credit.

1. Will the central bank succeed in taming high inflation with a soft landing?

The ideal scenario for businesses and consumers: the monthly job gain/loss remains small while the inflation gradually retreats.

2. How high will the consumer risk normalization go?

Last year, the flow rate into consumer delinquency steadily rose. That will arrive in the loss bucket this year.

3. Would we see any sizable mortgage foreclosure?

If the last recession is the guidance, we will see the impact on subprime variable rate holders 12-18 months after the first rate increase in the cycle.

4. How much will the used car price drop further?

The year 2022 saw the used car price index decrease ~15% from the peak. The continuous price drop will impact the new car market and the performance of car loans.

5. What new products we will see, from both incumbent banks and fintechs?

In the high inflation low growth environment, consumers have even greater needs for their finances. With the new tech infrastructure, it is the mandate of the FIs to meet the demand.

6. Any rule-making for the Banking-as-a-Service model?

Regulators drummed the beats around embedded fiance and BaaS in the last quarter of 2022. Will we see any concrete actions soon? Who will remain in the long game of banking?

7. How far will big tech’s entry into consumer finance continue?

It’s in big tech’s DNA to expand into consumer’s daily life, but not all efforts in finance have been successful. Is the initiative making strategic sense - with headwinds from the regulator, consumer advocacy, and ultimately the return on the business?

8. What is the impact of BNPL on consumer credit scores?

BNPL trades began to show up in credit reports, finally. However, the impact on existing credit scores is not clear yet. Consumers' behaviors also will evolve with underwriting, reporting, and regulation all in place.

9. How will the de-fi lending protocols develop from here?

Without proper risk management and control, the ce-fi crypto model (crypto exchanges) imploded in 2022. Does that give crypto enthusiasts more incentives to experiment on de-fi lending protocols or less?

Anything else you will be watching this year?

The world is risky, Embrace your risk.

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