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What do good customer data-led strategies look like?

The publication of the Woolard Review creates implications and opportunities for lenders, particularly in the areas of forbearance and affordability. With the credit market seeing an accelerated evolution towards greater digitalisation and customer convenience during the pandemic, how do lenders meet the needs of consumers – while ensuring regulatory responsibility?

In a recent Experian podcast, we spoke to Andy Wills, Director of Data Insights, Andrea Cox, Director of Affordability, and Adrian Gaughan, Director of Software Solutions, to get their thoughts. This page contains some of the main points from that conversation. If you’d like to hear it in full, you can listen to the whole podcast below.

Digital, technology, retail and credit are converging, presenting a threat – and an opportunity

It’s a fascinating time for the credit market, with powerful technology and retail companies creating slick interactions that attract customers and help them transact faster.

These companies present a threat to traditional credit companies, so our experts believe the firms who’ll succeed in the future are the ones who really understand their customers and design the products and interactions that meet those needs.

The prevalence and re-emergence of buy-now-pay-later (BNPL), connected to the digitalisation of retail, is an excellent example of this. Aimed at younger, internet-savvy consumers who want frictionless transactions, BNPL has become popular because of its convenience – and the fact it doesn’t even look like credit.

However, our experts pointed out there’s a risk in this area, recalling how short-term lending at the start of the 2000s quickly got of control.

The growing need for forbearance and affordability across the lifecycle

The Woolard Review highlights the need for lenders to show greater forbearance, debt support and affordability across the lifecycle.

While the introduction of government-mandated emergency holiday payments was a kind of pre-emptive forbearance, the concern now is that we can expect to see an acceleration into default for many customers in 2021.

Woolard recognises the importance of forbearance in mitigating this, and our experts say that lenders need to treat it with equal importance to support their most vulnerable customers.

Today’s data makes it easier to track affordability

Historically, tracking affordability beyond initial application has been difficult due to a lack of information. However, the evolution of data and its availability today, alongside agile SaaS solutions, makes it much easier to track affordability across the lifecycle, something the FCA is keen for lenders to do.

Combining newer data sources such as Open Banking with traditional bureau data, lenders can gain much greater insight into their customers, helping them spot potential trends that could affect their ability to repay.

One thing Covid has highlighted is that the traditional approach of looking at income over the last 12 months is no longer reliable – lenders need to look at data over much shorter periods. They also need to supplement data, with indicators that highlight non-traditional stress. By doing so a more accurate picture can be enabled.

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Minimising friction to support fast customer decisions

With the availability of different data comes different levels of friction. The challenge for lenders is how to ingest high levels of data quickly, making the best use of it through effective strategies and decisioning.

While new players with agile approaches and modern platforms might find it easier to plug in data assets, larger, more established companies may find their legacy systems out of step with requirements. However, Experian can give organisations the support they need, thanks to its cloud-based decisioning platforms.

Continually assessing affordability

Our experts highlighted that, although there’s a vast amount of data out there, lenders shouldn’t take a one-size-fits-all approach. Different types of data are more or less appropriate depending on the consumer’s circumstances, such as whether they’re high or low earners, the type of product they want, etc.

Once a customer is on board, it’s a case of continually assessing affordability to make sure they’re being supported with the right products. It’s all about leveraging the right data quickly to make the best decisions for customers.