During 2014 we have seen a variety of trends in the credit industry from the threat of rising interest rates, rising house prices and ever increasing regulatory pressure. With so much going on, and so many factors and considerations to take into account 2014 has been a challenging yet hopeful year.
There is so much to consider. And this is just a selection of the trends we’ve seen during 2014. It is also expected that some, if not all, will roll into 2015.
Interest rate rises
January 2014 saw a real concern that interest rates could rise sooner than expected. Initially linked to decreasing unemployment levels, the chance of interest rates rising – particularly on mortgages, was high. Whilst this is still an area which remains changeable, certain economic and financial risks could derail any proposed date and raise them sooner. Regardless of when – it is certain, they will. And when they do – are you prepared? Can your portfolio withstand the stress for a start? Pressure was also felt by banks as they are asked to prove capital adequacy.
Increased consumer spending
Sources also indicated that new lending increased by a third. Perhaps a positive response to the growing confidence in consumer spending, this surge in unsecured lending was recorded by the Bank of England comparing data from September 2009 to September 2014.
Regulation, regulation, regulation
Probably one of the most talked about subjects across lenders, is the growing focus on regulation. Various regulations have been talked about and focused on but affordability remains a persistent high. With the FCA tightening affordability measures across all consumer lending – understanding how to assess fair lending policy has remained an unanswered challenge for some. The crux however, is being able to accurately and responsibly lend in an ever-evolving world.
In regards to the economy, surging business confidence, robust economic growth and lower bank funding costs have driven a rapid improvement in credit market activity over the last year. Demand for consumer credit is set to grow at a steady pace, benefiting from continued employment growth and a recovering housing market. House prices in particular peaked in the summer and were recorded at an all-time high as a result. But will this be sustained? What areas will plateau, increase or decrease over the coming months?
Linked, or unlinked, no one can be certain – but identity theft accounted for nearly half of all detected fraud cases between August 2013 and August 2014, according to Experian fraud data released in the Autumn. With detected fraud currently standing at 35 frauds per 10,000 applications a focus began to emerge on whether or not organisations understood how fraud levels have evolved.
With a rapidly changing environment, increasing market share and improving customer relationships has been pivotal to the success of many. But, this may mean entering higher risk segments which needs to be managed carefully for various reasons. As such, what should you lend to which people? Assessing whether lending policies are up-to-date to provide you with a clear view of today’s customer began to emerge across lenders objectives. Adding a more complex angle – what are the future financial needs of customer’s? There needs to be careful consideration paid to the business and customer need for lending – which ultimately, overrides everything.
How do you effectively reach these customers? There are often competing priorities and different offers and messages for the same customers of an organisation. As such, a focus on the individual needs of such customers continued to lead the way this year. For example, how do you determine what to send to whom and when? Especially as digital revolutionises marketing strategies meaning the frequency of contact is or could be ramped up.
Talking of reach – what if they move home? With millions of pounds of estimated debt created as a result of people moving home [and trying to avoid paying their final bills] and a significant proportion of this debt being written-off, it became apparent this could be a potential problem for lenders. Plus, this is compounded by missed opportunities to retain valuable customers during the home move journey.
Fairer collections strategies
Unpaid bills weren’t just a concern for home movers either. As some customers struggle to pay their bills – assigning the appropriate priorities to collections remained a struggle this year. Is it can’t pay, or won’t pay? How long do you let your dialer dial? Faced with this issue lenders also struggle to consolidate DCA agencies and maintain a manageable model for the long-term helping them manage recoveries in an automated and efficient manner and always with the fair treatment of customers in mind.
Setting a successful strategy
The final focus of the year has seen many questioning what is the strategy for success? How will you overcome some of these barriers or capitalise on the opportunities? Having the intricate detail about performance, concentrations, behaviours and outlook can help identify, enlighten and inform you of the current and future risks and opportunities you may face as we go into another year.
This shake up in the finance industry shows no signs of slowing as we enter 2015. These are exciting times for financial services organisations. Customers are at the heart of everything, but without accurate data and customer insight, understanding their intricate needs can be a hard challenge to overcome.
Why not start by navigating around our animated infographic? It expands on the topics above with useful guides, videos and more of how we can help you to develop robust business strategies taking you into 2015 with an optimistic outlook and road-map for success.
 Source: based on BOE data, October 2014, increase from £13.4b in September 2009 to £17.9b from September 2014)
 Experian Economics – Quarter 1 report, May 2014
 Based on August 2013 to August 2014 fraud data. Experian works closely with National Hunter and Insurance Hunter, the UK’s leading fraud prevention systems, operated by Experian on behalf of members.
 Experian whitepaper, Make Every Contact Count. November 2014