Overstretched Britain: One in four have fallen into troubling financial behaviours
Our research conducted earlier this year revealed an overstretched nation. One in four in the UK have fallen into troubling financial behaviours over the last year, such as exceeding overdraft limits, missing credit card payments, and taking out additional loans to pay off other debts.
With cost-of-living still a worry for consumers, many are resorting to short-term credit to support their everyday spending. Close to half of those surveyed had applied for either a personal loan, credit card, payday loan or overdraft in the last year. Additionally, 21% said they regularly use such products to meet day to day expenses.
Reconciling this behaviour alongside the country’s relatively new Consumer Duty rules presents a challenge for lenders and other credit providers.
Successfully navigating a changing landscape
The UK Financial Conduct Authority’s (FCA) introduction of the Consumer Duty is fundamentally changing the lending landscape – for lending businesses, avoiding foreseeable harm and improving customer outcomes is a top priority. As the FCA says in their guidance, these rules “set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”
Firms must:
Act in good faith
Avoid causing foreseeable harm
Enable customers to achieve financial objectives
To do this effectively requires putting data at the heart of a customer-centric approach. Open Banking is here to help organisations respond. Firms that adapt and adopt new tools can help their customers look forward to a brighter financial future.
Here’s how!
Use real-time data to make more informed decisions:
Moneyhub’s Categorisation Engine helps firms understand what customers really do with their money. Our powerful AI algorithms analyse an applicant's income and spending behaviours to identify key indicators for affordability, suitability, eligibility and vulnerability.
Beyond the initial lending decision, it helps firms make better, more informed decisions for in-life and collections leading to improved customer outcomes.
Facilitate compliance with Consumer Duty:
Our Detect. Intervene. Evidence. tools for Consumer Duty provide the proof and compliance reporting at every stage of the customer lifecycle.
We give firms the required insight into their customers’ position and any changes in circumstances, which is the key to fulfilling Consumer Duty. With a customer's explicit consent, firms can gain a holistic view of the customer’s entire financial situation, covering their assets, liabilities and cash flows on an ongoing basis – providing a complete picture of the financial capability and wellbeing of their customer.
Improve payments processes with Open Banking:
Additionally, offering Open Banking powered payments adds a new dimension to support customers. Secure, immediate payments mean customers get their funds quicker, but it also facilitates them repaying their loan. Firms can monitor vulnerable or high-risk customers’ cash flow, and alert them to a repayment’s due date and nudge them to set aside funds for the payment if there is a risk of non-payment.
Making repayments easier
Open Banking presents three unique ways for firms to support their customers to meet repayment obligations. Firstly by making payments smarter than traditional Direct Debits and secondly by empowering the customer to take charge of their finances. Last but not least, when it comes down to chasing customers for missed repayments, providing customers with simpler ways to pay can make collections easier for firms!
1. Variable Recurring Payments can support people to pay in a way that’s tailored to their circumstances:
Instead of a typical monthly Direct Debit, regular payments can be set to match a customer’s weekly or fortnightly income pattern.
To avoid a customer going into an overdraft, transfers can be enabled from an account with sufficient funds.
If a customer had more costs than usual, e.g. because their car and contents insurance were both due, the payment amount can be reduced for one month and made up the next.
Sweeping VRP is available today to assist customers making payments against unsecured loans, allowing them to set repayment rules that work for them based on their circumstances, for example, making payments when they receive their salary, benefits or other income rather than having to budget for inflexible Direct Debit schedules later in the month.
2. Push notifications or ‘nudges’ via Open Banking, can play a key role in empowering customers:
Using analytics and their own financial data, customers can be reminded when payments are due, facilitating any transfers necessary.
It reduces needless missed payments, if they have the money to pay but just in another account.
Customers can manage their finances with greater ease and efficiency. This creates an environment where their financial confidence can grow, they can start to build up their resilience, and work toward a healthier financial future.
3. With pay by link you can take all the hassle out of debt collection:
A link is sent via email, a messaging app, or printed as a QR Code on a paper bill.
The link directs the customer to their banking app for secure payment with biometric authentication and immediate settlement.
It avoids spending unnecessarily on call centre staff or relying on outdated and very expensive Interactive Voice Response (IVR) systems, or worse, manual processes, to take payment over the phone. It’s time to move away from these methods, especially as limited identity verification and risk of data exploitation leave the door open to fraud.
We’re here to help firms explore the best solutions to support their business, from initial customer affordability checking to managing repayments more efficiently.