04/18/2025 | Press release | Distributed by Public on 04/18/2025 02:20
In today's rapidly evolving economic landscape, lenders must stay ahead of the curve by understanding emerging consumer trends and the growing demand for alternative finance. The current economic climate is marked by uncertainty, shifting consumer behavior, and diverse financial profiles, all of which are significantly impacting the lending landscape. And as advancing technology continues to present challenges and opportunities to lenders, the market is only becoming more complex.
Equifax is committed to supporting alternative finance organizations, including lenders and other supporters. Here's what you need to know about the economy's influence on fraud trends and the recent rise in alternative finance and how it could impact your organization.
The Macroeconomic Context of Fraud
While fraud is often discussed from a consumer perspective, it's crucial to recognize it as a broader macroeconomic trend. The rapid advancement of artificial intelligence, digital banking, open banking, and mobile banking has led to an accelerated pace of new fraud trends. For instance, auto fraud involving synthetic identities has seen a dramatic 60% increase year-over-year. This type of fraud involves creating fake identities to purchase vehicles without the intention of paying, often resulting in the vehicles being shipped overseas or resold on the black market.
Account takeover fraud has also surged with a 26% increase since 2020. This rise is attributed to improved technology, enhanced data manipulation techniques, and easier methods for fraudsters to impersonate real individuals. AI, while beneficial for many businesses , also enhances a significant threat, particularly in account takeover and mobile fraud, which has increased by 26% and 44% respectively in the last few years. Additionally, synthetic identities have become even easier to create and harder to detect than ever before. Businesses must implement robust strategies to identify and prevent fraud early on, ensuring they are dealing with genuine consumers.
A Decline in Income and a Rise in Expense: Understanding Financial Shocks
Economic volatility and recent inflation have led to significant income and expense shocks for many households. These households may see significant income decreases and/or significant expense increases, causing a large strain on their finances.
These financial pressures can be compounded by unforeseen events, such as natural disasters, as seen with the recent wildfires in Southern California. Such occurrences can lead to simultaneous income loss and increased expenses, leaving communities in need of immediate financial support. Businesses that can offer timely and accessible financial services during these challenging times play a critical role in helping individuals and communities recover.
A Growing Demand for Alternative Finance
In addition to those facing financial hardship, there's a segment of the population that is financially stable but simply seeking alternative ways to manage their finances. These consumers may have unconventional employment situations or prefer financial products that offer flexibility and align with their variable incomes.They may avoid traditional lending options such as credit cards or hefty personal loans, opting instead for buy now pay later services or other alternative finance products.
35% of consumers seeking alternative finance products have prime or super prime traditional credit scores. These individuals could easily obtain traditional credit products but choose alternatives for various reasons, such as wanting to manage their finances differently, seeking greater flexibility, or preferring a more personalized approach. This trend highlights the need for businesses to understand and cater to diverse consumer preferences.
Consumer Statistics and Demand Trends
An analysis of consumer statistics reveals both positive and negative trends in demand. There has been a decrease in demand for recreational electronics, indicating that consumers are prioritizing essential spending. Traditional bank card originations and first mortgages for subprime consumers have also decreased, suggesting that some consumers are facing challenges in accessing traditional credit.
However, there has been a significant increase in demand for alternative lending products. Demand has risen by 40% over an 18-month period. Consumers with annual incomes of $50,000 to $70,000 and those over 50 are showing a 30% increase in demand for alternative finance. Additionally, there's a doubled demand for alternative financing for auto purchases, particularly in the subprime auto space. Many consumers find it challenging to afford current car prices, given interest rates, and seek alternative financing solutions to meet their transportation needs.
Navigating Today's Economy
The current economic landscape presents both challenges and opportunities.To thrive in today's economy, businesses must have a deep understanding of consumer behavior and financial trends. Having the right tools, analytics, data, and infrastructure to offer tailored solutions that meet consumers' specific needs is a must in this competitive market. Equifax's suite of solutions can help lenders optimize new account openings by including advanced credit scoring models, identity verification tools, and alternative data insights.
By staying informed about economic shifts and consumer preferences and understanding the evolving needs of consumers and the growing demand for alternative finance, businesses can navigate the complexities of the current market and ensure profitability and productivity through the development of innovative solutions and strategies.
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(c) Equifax Inc. 2025. All Rights Reserved. The statistics provided in this blog are for illustrative purposes only.