In lending businesses, managing repayments isn't just a back-office function – it's the heartbeat of your commercial enterprise. At Modulr, we've partnered with lenders across the spectrum, from traditional banks to innovative digital platforms, and we've learned that how you collect payments defines your entire lending approach. 

The UK lending market is undergoing a profound transformation. Alternative lending is growing and the four largest banks have lost around 20% of the SME market in the past ten years¹, allowing challenger and specialist banks to take the majority for the first time. The growth of Buy-Now-Pay-Later or BNPL providers is both a reflection and a driver of change in the way consumers borrow and pay for goods and services. That change is quite dramatic – in fact, by 2029, the BNPL market in the UK is projected to reach £43.2 billion, with a CAGR of 9.8% from 2024 to 2029.² 

This expansion and diversification of borrowing is occurring in both consumer and business lending. One of the drivers of the variety of lending models are solutions that enable more sophisticated payment collection mechanisms, allowing lenders to serve increasingly diverse borrower profiles via increasingly diverse models. 

Repayments: the strategic backbone of lending 

Every lending product is fundamentally a carefully designed payment collection mechanism. Repayments may be affected by size of loan, repayment schedule, the borrower, the collateral and other financial considerations. Often, the differentiating factor for lenders is the type of business the lender is – whether it is independent or part of a larger institution, or whether it is digital-first or not.

These structures often reflect how payments might be managed, whether that’s through different account types, repayment methods, reporting and automations or scaling – all of which come with different risk profiles and regulatory requirements.  

For instance, while instant disbursement is more or less preferred for most lending scenarios, repayments vary hugely in size, frequency, regularity and duration. The number of borrowers a specific lender may deal with also complicates its repayment approach, with more borrowers requiring a greater technological and personnel investment to scale services upwards. 

So, you may think you know lending, but how many types do you know about? 

In this blog, we’ll explore a range of lending models in:

1. Consumer lending
   
   
2. Business lending

Types of lenders and their unique payment needs

Consumer lending 

Short-term lending 

Credit card lending is the most common consumer lending product, used for everything from grocery shopping to big-ticket purchases spread over structured repayment plans. Credit cards can be physical or virtual, off-the-shelf or highly tailored, and rolling month-on-month or defined by specific time and spending limits.  

Whichever way they are designed, lending via cards relies on lines of credit with variable repayment terms.  

Cash loans are perhaps the oldest form of lending, although digital banking has made collection much easier today. Typically used for small, short-term loans with flexible repayment options, cash loans require fast, digital disbursement and can be collected via a range of push or pull payment methods, from account-to-account transfer to old-fashioned cheque. 

Advances and wage solutions 

Modern ‘wage streaming’ and ‘on demand’ wage solutions are quickly superseding the traditional payday loan in the consumer market.  

Salary or wage advances are just that – advances against accrued earnings that monthly payroll has not yet released – and are repaid through payroll deduction. These require integration with payroll systems and modern offerings are able to pay-out within minutes of a request, but any technology must be flexible enough to handle variations in pay schedules, unexpected changes in employment, and individual borrower circumstances.  

Longer-term lending 

Mortgages and personal loans demand a different approach to payment collection. Here, the focus shifts to creating predictable, long-term collection strategies, whether through push payments such as Standing Orders or pull payments, such as Direct Debits. Lenders need systems that can handle variable repayment schedules, manage partial payments, provide real-time updates to borrowers, and integrate sophisticated risk management tools. 

• Personal loans: As unsecured loans with fixed or variable interest rates, this lending model requires secure, automated payment processing over extended periods. 

• Auto loans: Designed to finance expensive vehicle purchases, incremental repayments usually require the lender to integrate financial software with dealers or escrow services for a potentially lengthy repayment period. 

• Student loans: These lump sum payments typically come with deferred payment structures, with payment platforms often supporting long-term instalment plans and changing payment schedules that reflect graduates’ future earnings. 

• Mortgages: Ultra-long-term loans for home purchases often require secure, large-scale, recurring payments, with flexibility to accept scheduled and unscheduled overpayments that can radically affect the estimated repayment period. 

• Home equity loans/lines of credit (HELOC): Loans or revolving credit lines secured by home equity require sophisticated underwriting and risk management. 

Longer-term loans often require more complex reporting and analytics capabilities. Lenders must be able to track loan performance over extended periods, adjust for changes in interest rates or borrower circumstances, and provide clear, detailed statements to both borrowers and regulatory bodies. 

Example of specialised lending 

Title loan providers illustrate the diversity of collection challenges. These lenders require unique payment systems that can track collateral valuation, manage complex repayment structures, provide instant collection capabilities if loans default and integrate physical asset management with digital payment flows. 

In a similar way, a pawn shop might need a system that can automatically adjust repayment terms based on fluctuations in the value of collateral. This requires real-time integration with market pricing data and the ability to quickly communicate changes to borrowers. 

Buy now, pay later 

Point of sale (POS) or Retail finance is a form of lending where the merchant offers their customers a consumer financing solution at the point of purchase, in order to assist them in buying the product or service. 

Buy Now, Pay Later or BNPL is closely related, and tends to describe financing offered by a business other than the merchant themselves, despite being offered as a form of payment during an online checkout, or POS. BNPL allows customers to purchase products and services without having to commit to the full payment amount up front, choosing instead to pay them back in fixed instalments over time. 

BNPL providers face unique challenges in payment collection. They need to be able to automatically issue funds to merchants for each purchase and rely on systems that can process multiple small payments over time, integrate seamlessly with e-commerce platforms, manage risk across a large number of small-value transactions and provide clear, transparent repayment schedules to consumers. 

The success of BNPL lenders often hinges on their ability to make the repayment process as frictionless as possible. This might involve developing user-friendly mobile apps, sending timely reminders, or offering flexible repayment options to reduce default rates. 

Business lending 

Business lending introduces even more complex payment collection challenges. 

• One-off term loans: Traditional loans with fixed terms and repayment schedules, these are perhaps the easiest to manage, requiring standard automated payment systems for recurring payments. 

• Business line of credit: This flexible borrowing option demands integration with business accounts for efficient fund disbursement and repayments as credit is used or paid back as needed. 

• Commercial real estate loans: Loans for purchasing or developing commercial properties often involve complex legal and financial structures with large transaction sizes, meaning repayment is often more rigidly structured than other loan formats. 

• Microloans: Small loans for businesses are typically offered to startups or businesses in emerging markets. These require flexible, low-cost payment solutions for smaller transactions and can lend themselves to embedded payments technology. 

• Peer-to-Peer (P2P) lending: Loans facilitated by online platforms where individuals or businesses lend to each other directly require payment systems that can manage multiple small investors, repayments and fees. While potentially agile and effective, managing these loans is a complex business. 

Revenue-based financing and future-proceeds loans 

Revenue-based financing is where loans are repaid as a percentage of future revenues and are often used by startups or high-growth companies unlikely to have liquid assets to repay debt on demand, or a reluctance to give up equity to fund growth. Payment systems must track fluctuating cash flows and revenue cycles, meaning that lenders’ systems need to track borrowers’ business revenues, automatically collect predetermined percentages, adapt to seasonal business cycles and provide transparent reporting for multiple stakeholders. 

For instance, a revenue-based finance provider might need to integrate directly with a borrower's point-of-sale system or bank account to capture real-time sales data. The collection system must then be able to calculate the correct repayment amount based on agreed-upon terms and initiate transfers automatically. 

Other related financing methods include Merchant cash advances, where advances are based on future credit card sales, repaid daily via card processing receipts and with any payment technology tied directly to POS system, and Supply chain financing, where loans are tied to specific transactions in the supply chain, requiring close coordination between suppliers, buyers and lenders. 

Invoice factoring 

Invoice factoring involves selling unpaid invoices to a third party at a discount to access immediate cash. Lenders operating this model requires integration with accounting systems and invoice verification. 

In invoice factoring, payment collection becomes a real-time validation of business performance. Collection mechanisms are directly tied to invoice values and customer payment behaviours. Lenders need systems that can integrate with accounting software, verify invoice authenticity in real-time, manage complex multi-party transactions and provide flexible funding options based on invoice status. 

The complexity here lies in managing the relationships between the lender, the borrower and the borrower's customers. Payment systems must be able to handle partial payments, reconcile invoices across multiple customers and provide clear reporting to all parties involved. 

Equipment and inventory financing 

Inventory financing loans are secured by a business’s inventory, often requiring inventory management integration and regular valuation updates. 

An Equipment finance lender, meanwhile, might need to adjust repayment terms based on the actual usage of financed machinery. This requires integration with IoT devices to track equipment use and sophisticated algorithms to calculate fair repayment amounts. 

These specialised forms of lending require payment systems that can track asset depreciation, manage complex repayment structures tied to asset usage or inventory turnover, integrate with systems managing those assets, and handle large, infrequent payments as well as smaller, regular instalments. 

Technology transforming payment collection 

Digital innovations are revolutionising how lenders approach payment collection. Real-time payment technologies and advanced data analytics now enable: 

• More accurate risk assessment 
• Personalised collection strategies 
• Reduced operational costs 
• Enhanced borrower experiences 

Open banking initiatives continue to advance this transformation, allowing lenders to access real-time financial data and tailor their collection strategies according to specific borrowers. This can lead to more flexible repayment options, reduced default rates, and improved customer satisfaction. 

The Modulr advantage: turning repayment challenges into opportunities 

At Modulr, we don't just provide payment infrastructure – we deliver a strategic repayment ecosystem. Our solutions are designed to scale with your unique lending model, provide real-time collection insights, reduce payment friction, and enable innovative collection approaches for even the most specialised lenders. 

We understand that every lender is unique, and your payment collection strategy isn't just a process – it's the foundation of your entire business model. Our platform can be customised to meet the specific needs of different lending types, whether you're managing high-volume, low-value transactions for a BNPL service or complex, multi-party payments for invoice factoring. 

Your repayments, your competitive edge 

As the lending landscape continues to evolve, lenders who view payment collection as a strategic asset – not just a transactional process – will lead the next wave of financial innovation. By partnering with Modulr, you can transform your payment collection strategy into a powerful competitive advantage, no matter what type of lender you are. 

Ready to revolutionise your lending collections?