By identifying vulnerable customers, you can create better collections strategies

Financial vulnerability has been a significant focus for lenders well before the COVID-19 pandemic began. This is expected to continue, with even more emphasis placed on proactively identifying and helping consumers, as most lenders begin to prepare for a surge in the volume of those requiring some form of support following the expiration of agreed furlough schemes, freezing of interest and charges, and emergency payment holidays. It’s likely the largest impact will be concentrated from the summer months.

So how do you identify customers who are financially vulnerable, while enhancing your operational efficiency and accuracy?

Affordability assessments require extra vigilance

Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which will require full understanding a customer’s current circumstances and financial exposure, and therefore breadth of their indebtedness across all credit commitments. This should include combining affordability and credit data. To achieve this, and comply with the FCA’s Treating Customers Fairly requirements, lenders need to ask three key questions:

  • Is the customer up-to-date with their priority bills?
  • Are they paying their other creditors?
  • Are they maintaining payments on their account(s)?

To answer these questions, it’s essential to have a comprehensive view of a customer’s entire product holding.

Education and empowerment are crucial

There’s also a need for more proactive intervention and signposting of financial support. For example, promoting the services of StepChange, the Money Advice Trust and others. Similarly, empowering consumers to regularly check and manage their credit report will be vital in helping them access the right services and understand how their credit score is changing.

 

Automation will bring much-needed speed, at scale

To be effective, many of these actions need to be carried out quickly, while placing as little demand on you, or your customers, as possible. This is where effective use of advanced data, insight, analytics and technology become key. Tapping into resources that help you automate previously manual processes, such as the capture of income and expenditure, or being alerted to relevant changes in consumer trends and behaviour, ensures you’re better prepared to manage both the scale of demand, and the speedy response it requires.

Spot the new signs of financial strain

Now more than ever, it’s important to be able to identify financially vulnerable customers and assess whether a product is affordable for individuals, both at on-boarding and throughout the lending lifecycle, including collections. There’s a recognised need for greater visibility, insight and resilience, but escalating volumes and stretched resources make that a significant challenge.

Pre-Covid-19 indicators have markedly changed

Being able to model behaviours which indicate financial strain, and track them as they change, is integral in a crisis scenario. While pre-Covid-19 indicators of financial vulnerability included spending without funds, faster spending, excessive overdraft use, increased ATM withdrawals and a high appetite for short-term borrowing, things have markedly changed. Right now, the warning signs for financial vulnerability include loss or drop in income, a shift in spending to high-priority items, new or unauthorised overdraft use, greater reliance on savings and an appetite for high-cost loans.

Re-prioritisation and revision of treatments is required

To enable you to focus on your most at-risk customers, consider whether you could relax your approach to other areas of your collections work. Perhaps right now your lower-risk customers don’t need so much attention, some outbound phone campaigns could be suspended, or your scorecard strategies could be used differently to help your team re-prioritise their focus.

 

How can Experian help?

Be armed with insight – be equipped with foresight

Experian can provide access to real-time data that helps you understand changes in consumer or business behaviours, spending patterns and payment trends. Through our tailored services, we can provide a current and future view of risks. Our insight dashboards include consultant-derived commentary designed to help you turn insight into action, featuring market and portfolio insights – as well as tailored metrics and definitions based on your specific needs.

An intuitive portal taking the strain out of customer risk assessments

Our Customer Assist Portal helps you manage the increasing need for customer vulnerability assessments, making it easy to conduct them accurately, at speed.

A powerful predictive tool giving you meaningful insights into spending

Our Financial IQ predictive system is an in-depth indicator and scenario tool which uses transactional data to identify where a customer sits on the affordability and vulnerability spectrum, and to analyse their patterns of spending and debt over the previous year. This shows you how an individual may respond to financial stress, for example rising food or travel costs.


We’re here as your trusted partner

We understand the growing burden of trying to understand how you can recognise the difference between customers who miss payments due to the current crisis, and those who are genuinely financially distressed and need special attention. We can help you establish a compliant approach that provides validated income and risk factors associated with financial difficulty, helping you create individual contact strategies best suited to each customer’s circumstances.

Speak to your account manager or contact us and we’ll be happy look at how we can support your specific situation.

Sources:

*www.statista.com/statistics/1116638/uk-number-of-people-on-furlough/

**The Guardian – https://www.theguardian.com/business/2020/may/29/uk-banks-granted-15m-payment-holidays-on-credit-cards-and-loans