What Lenders Should be Thinking About Throughout 2023

At the second Equifax Industry Roundtable, leaders in Canadian financial services came together to discuss managing risk and finding growth opportunities in today's volatile economic environment. Below are the key economic takeaways for lenders in consumer, commercial, and fraud lines of business. 

 

Consumer Key Takeaways

 

The economic impact of interest rates may take the rest of 2023 to become apparent. Increased savings during the pandemic and higher incomes have buffered some of the effects of interest rates among certain groups of consumers. 

Nonetheless, specific pockets of consumers may be at risk of future financial stress in 2023. For those without a mortgage, the continued impact of higher costs of living may cause financial stress, particularly for those with lower income and limited savings. Interest rate payment shocks will continue to gain pace, affecting consumers with mortgages and HELOCs. As a lender, segmentation can be critical during this time in order to help manage risk while maintaining growth. Lenders should think about monitoring shifts in behaviour and spending patterns.

When it comes to growth, there may be an opportunity for lenders with new-to-Canada and new-to-Credit consumers. Over the next three years, Canada is expected to welcome 1.5 million new Canadians. Being first in the wallet can help with lifetime value for lenders. Testing and leveraging alternative data can assist with assessing creditworthiness and making confident credit decisions, especially in new-to-Canada and new-to-Credit consumers.
 

Business Key Takeaways

 

Business growth was relatively stagnant in 2022 and showed little to no seasonality. The potential recession may continue to limit new business growth, as well as continue to drive up the cost of borrowing, and certain industries may be impacted more than others in these current economic conditions. High inflation is affecting industries such as retail and transportation, while supply chain issues continue to remain a concern for many others.

Small businesses are also more likely to feel the impact of the changing economy. Difficulties for small businesses include the high cost of borrowing, maintaining cash flow, and continued staff shortages, which may negatively affect business profitability. As well, the Canadian Emergency Business Account (CEBA) loans issued during the pandemic to some businesses,  will begin to accrue  5% interest annually as of January 1, 2024. Although small businesses can receive up to 20 000.00$ in forgiveness if they are in good standing by December 31, 2023, there is a heavy burden currently weighing on a number of Canadian small businesses who acquired a CEBA loan. Lenders can benefit from reliable market insights to assess their risk exposure across multiple sectors of the economy. 
 

Fraud Key Takeaways

 

Fraud losses in Canada reached a historic high in 2022 according to the Canadian Anti-Fraud Center, with $530 million in victim losses. This loss is nearly a 40 per cent increase from the fraud losses in 2021, which amounted to a previously unprecedented $380 million. 

Identity theft is a growing concern for consumers and lenders, as credit card demand remains strong amidst the high cost of living. “Overall third-party fraud** rates are up significantly, and can be attributed to identity fraud. The current tough economic conditions are likely having an impact as we have been seeing an increase in financial stress and changes to consumer payment behaviour,” states Cherolle Prince, Director of Fraud Consulting at Equifax Canada. Rising debt levels and financial stress are also leading indicators of potential first-party fraud risk*. 

As a lender, mitigating risk in real-time can help reduce future fraud losses and increase revenue. Taking steps to protect your business from fraud can also improve your client journey, and strengthen your customer strategies. 
 

We want to help Canadians live their financial best. If you want to learn more about understanding credit market trends, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

 

*First-party fraud: when an individual/consumer intentionally misrepresents themselves or their identity for financial gain.

**Third-party fraud: when a fraudster uses another individual’s identity or personal details without their knowledge or consent for financial gain. It can include the creation of fictitious identities which fraudsters use to carry out various fraudulent behavior.

 

This article is published by Equifax Canada Co.® 2023. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice.