Borrowers and the cost of living: setting the scene for responsible lending in Sweden
With traditional credit checks making it difficult for people to gain access to loans, some who most need financial support are resorting to desperate measures to obtain credit. By prioritising investments in data-driven lending models, lenders can make more informed credit decisions to enable credit access to those who can afford it, while protecting struggling borrowers from getting into financial distress.
As the cost of living continues to fluctuate, both borrowers and lenders are feeling the impact – with the challenges they face shaped by local factors.
More Swedes are becoming reliant on loans, sometimes turning to unsecured lenders, leading to higher numbers of defaults.
By prioritising investments in data-driven lending models, lenders can make more informed credit decisions to enable credit access to those who can afford it, while protecting struggling borrowers from getting into financial distress.
As the cost of living continues to fluctuate, both borrowers and lenders are feeling the impact – with the challenges they face shaped by local factors. Recent research that we carried out at Tink, shows that in order to cover essential costs as many as one in four (25%) UK consumers have resorted to credit, while 23% have turned to instalment or delayed payment options just to stay on top of things.* Our additional research in Germany and France estimates that over half (53%) of German consumers use their savings to cover their current costs – and 60% of French consumers surveyed feel forced to choose between essential products.*
It’s clear that people are seeking alternatives to make ends meet – which means that being able to fully assess people’s affordability is more important than ever. Let’s take a look at how lending in Sweden is evolving.
More Swedes are becoming reliant on loans, sometimes turning to unsecured lenders, leading to higher numbers of defaults. The Swedish Financial Supervisory Authority (Finansinspektionen) reported in 2022 that one out of six Swedish borrowers who were granted an unsecured loan from a consumer credit institution received a collection notice within eight months (FSA Consumer Credit Report 2022). Among all Swedish lenders, one out of five unsecured loans was approved for a person who does not have any money left after paying their monthly costs.
The Swedish Financial Supervisory Authority also concluded that these figures indicate that credit assessments are too often inadequate (FI, 2022). In fact, the authority announced among its 2024 priorities ensuring “that consumers are being offered correct and good services on the financial market” (FI, 2024). Consumer credit institutions and smaller banks often have had to resort to using limited information in their credit assessments and it is these lenders that tend to have the largest numbers of customers who experience repayment problems.
Why prioritising robust affordability checks is key
Traditional credit checks combined with onerous, often paper-based processes to provide evidence of expenditure and income levels can be time consuming, out of date and end in higher abandonment or rejection rates.
Using Tink’s data enrichment and categorisation capabilities, financial service providers can assess a consumer's financial situation based on data-driven risk assessments.
Tink’s Income Check product is a key tool for many lenders in Europe – like Bank Norwegian and Sambla Group – helping them reduce the time required to verify an applicant’s income from days to minutes. Thanks to open banking technology, once an applicant has provided their consent via SCA, lenders can access their latest financial data to determine risk exposure in real time – while offering a better user experience.
In addition to increasing efficiency, Income Check helps the industry be more inclusive through advanced data analysis. For example, self-employed people – whose bank statements can be harder to assess due to more fluctuating income – are less likely to feel unfairly treated in the application process.
Getting the full picture of spending habits
Another key feature of data-enriched, secure affordability assessments is that they are better at looking at active, or current, spend rather than any legacy expenditure that may have wound down or no longer be relevant when making an assessment (e.g. a subscription that has been cancelled in recent months).
Tink’s Expense Check feature gives lenders real-time access to applicants’ fixed and discretionary spending. When combined with Income Check, assessing affordability has never been easier.
Enhancing risk decisioning to future proof your business
When squeezed budgets and limited internal resources push process upgrades lower down the priority list, partnering with a trusted fintech is a cost-effective way forward. By embracing data-driven technologies, lenders can ensure they are protecting themselves and their customers today, while future proofing their models. And we’re seeing this happening now all across Europe. Data-driven risk assessment models could be a key solution as younger borrowers appear willing to provide their financial data to lenders.
Ready to level up your affordability assessment? Last year, we helped lenders make better, faster decisions on more than 7 million consumer loan applications in the last year, and we expect to see this double in the next six months. Get in touch to explore how our risk decisioning solutions can empower borrowers while helping you get ahead.
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*About the research
For the UK: Consumer research was conducted by Censuswide on behalf of Tink in September 2023, amongst 1,000 UK borrowers aged over 18 (i.e. those who currently have either a mortgage or a loan). Lender research was conducted by Censuswide on behalf of Tink in September 2023 amongst 200 executives at a High street bank, Building society, Challenger bank, Payday lender or BNPL lender who have a decision-making role in the lending process.
For France: the study was conducted by Opinion Way on behalf of Tink 25–26 January, 2023 with a sample of 1007 people representative of the French population aged 18 and over. The sample was drawn up according to the quota method, with regard to the criteria of sex, age, socio-professional category, category of agglomeration and region of residence.
For Germany: the survey was conducted by OnePoll on behalf of Tink 1–3 February, 2023 with a sample size of 1,000 German adults. The sample was representative of the German population aged 18 years and over, with quotas based on gender, age, socio-professional category, urban area and region of residence.
Case studies, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Tink does not make any warranty or representation as to the completeness or accuracy of the Information within this document, nor assume any liability or responsibility that may result from reliance on such Information. The Information contained herein is not intended as legal advice, and readers are encouraged to seek the advice of a competent legal professional where such advice is required.
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