Financial technology and “fintech” is an incredibly fast-growing sector, which has no doubt been accelerated by the covid pandemic. The ability to make payments faster, more digitized, and accessible to the masses, has huge advantages and practicalities for consumers across the globe. Beyond this, the wave of heavily funded startups is creating a competitive environment for new and exciting financial products to enter the mainstream. Below, we highlight some of the financial products that have grown the most in 2021.
Buy now, pay later
The buy now, pay later movement is in full swing, with the likes of Klarna and Zilch giving consumers the opportunity to spread the cost of repayment or buy everyday items on demand and repay over several months.
Covid and lockdown measures saw household spending increase for everyday items including furniture, TVs and home gyms – with buy now, pay later used by millions in 2021 across thousands of retailers.
With Klarna, you have a 30-day payment option or the choice to repay in 3 months in 3 instalments.
With Zilch, customers must undergo a credit check and will usually be able to access a credit limit, similar to a credit card, but at least they can pay for items over 12 months, rather than their next credit card bill.
Less technologically driven, but equally fast-growing, the role of equity release allows seniors to release cash that is tied up in their home.
For ageing pensioners who own their mortgage outright or have paid a huge chunk of their mortgage, they can release 20% to 60% of their home’s value upfront and use this for things like home improvements, weddings, debt consolidation or to give money to their children and grandchildren as gifting.
Over 80,000 people used equity release in 2020 in the UK, with an average sum of £64,000 and this allows people to continue to live and stay in their homes until they die or go into long-term care. The entire lump sum is tax-free, which makes it perfect for giving to children and grandchildren since this would otherwise be subject to inheritance tax.
There are many reasons why equity release has become more popular in 2020, including the rising living costs and better awareness of such products, with over 100 versions of equity release now available and the lowest rates in its history, starting from just 3% per month.
On Demand Pay Technology
On-demand pay or ‘salary finance’ allows employees to access their wages in real-time, rather than wait until the end of the month to be paid. This is only offered by a handful of startups in the US and the UK who integrate their product with the HR or payroll departments of companies.
The main benefit is that staff who have worked a set number of days, can withdraw this money at any time, with no interest or fees, since it is covered by the employer as a benefit in kind.
This product helps people who need a cash injection or have an expensive bill to pay – and this eliminates the need for high-cost credit or going into an expensive overdraft. Employees just have to be monitored to ensure that they do not become over-reliant on the product or they risk constantly being overdrawn.
As banks continue to have strict lending criteria for products such as mortgages and personal loans, the role of alternative finance offered by private lenders and investors becomes increasingly important.
Rather than going to your high street bank, you can apply for alternative or specialist finance, often used for businesses or those looking to purchase properties under tight deadlines and with different lending criterias. Alternative finance includes products such as bridging loans, mezzanine finance, construction finance, and peer to peer lending.
Both peer to peer lending and bridging finance were worth £1 billion as industries in 2011, but 10 years later, they are both worth £7 billion.
With uncertainty surrounding covid and banks being stricter than ever, this has given a greater need for alternative lenders and today their products are far more widely acknowledged in the mainstream – making the alternative finance industry a very exciting and fast-growing space to be in.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
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