4 ways lenders can prepare for navigating a perfect storm

by Tim Tomlinson - Executive Client Director, Financial Services
| minute read

Lenders are facing an unprecedented set of challenges.

It’s widely recognised that continued inflation, rising interest rates and the ensuing cost-of-living crisis will inevitably lead to increasing numbers of customers falling into arrears. As during Covid, in this environment, lenders will face the dual pressures of increasing provisions on the balance sheet and the increased operational expense of supporting their customers through this period. The customer service teams, and particularly those in collections, are likely to see increasing vulnerability, causing call volumes to increase significantly and forbearance options to become more complex. The operational challenges are significant; even if the additional resource that’s required can be secured, those new employees also have to be trained, equipped and retained.

This tough macro-economic environment unfortunately coincides with a challenging period in terms of compliance and regulation. The introduction of Consumer Duty in July 2023 means that lenders of all types and sizes need to examine the way they operate, and may need to adapt. This new and enhanced set of standards places consumers at the heart of the business, potentially changing the products they offer, the way they engage with their customers and the expectations of their suppliers. To compound matters, since the Russian invasion of Ukraine, financial crime compliance has become increasingly challenging, with organisations constantly battling to ensure that systems are up to date with ever-changing PEPs and sanctions lists.

Organisations should be acting now to carefully manage the impact of these factors and fully prepare for what’s to come. Protecting and supporting all customers, particularly those who are vulnerable - identifying those at risk of falling into arrears and supporting those already in arears - will be tough, especially with one eye on capital requirements.

Our recent survey highlights where teams need to act

Sopra Steria surveyed over 1,000 consumers in February 2023. We wanted to understand how they were coping with the cost-of-living crisis and how they felt about the support they were receiving.

What was most interesting was the fact that around a fifth of people we surveyed (19%) said they weren’t confident they were able to pay all their bills. When we asked whether they were confident in being able to pay an unexpected bill, the figure rises to 30% who weren’t confident.

So, overall we’re seeing a lack of confidence in the finances of a significant proportion of the UK’s population. We also asked our cohort what they would do if they found themselves unable to pay a bill. While nearly 60% would seek support from friends or family members, what is worrying is that 15% of respondents said they’d ‘do nothing’.

What should lenders do to prepare?

The results of the survey also point to poor data quality and a lack of access to important data throughout the customer lifecycle. Over a third of respondents (36%) stated that they never get a personalised service from their main bank. To do so requires robust data collection and management, as well as a consumer-centric approach to engagement. The lack of reliable and robust data prevents many organisations from being able to effectively communicate with customers, or to make informed decisions.

Typical challenges we see lenders facing include:

  • data held on each individual is incomplete or out of date.
  • data is stored in a legacy system which agents can’t access.
  • data is heavily reliant on human inputs and susceptible to user errors.

This lack of quality data and associated insights is also preventing financial services teams from forming a 360 degree view of their customers, and hampering their ability to identify and support ‘at risk’ people.

To properly prepare for the increase in demand from customers in financial difficulty, and to ensure full compliance with Consumer Duty in the care of all customers, lenders should act sooner rather than later in these key areas:

1. Using data for personalisation

The results from our survey show that people aren’t getting a personalised service, with appropriate decision-making. A siloed approach to data combined with poor data quality, management and access means many organisations are setting themselves up to fail as soon as a customer is onboarded.

To overcome these challenges, lenders need to take the time to fully understand the different data sources available to them. Making good use of behavioural data, showing how a customer interacts with your organisation at different touchpoints will give your teams insight and knowledge into how they are likely to behave in future. As a starting point do you know how often a customer phones your helpdesk, visits your website, or has a face-to-face interaction with one of your staff?

Investing in data analytics will then ensure this information is properly used to build different customer personas and segments, allowing for insight-driven decision-making and the creation of personalised services.

2. Prepare for change with predictive modelling

Predictive modelling of customer behaviour enables a forward-thinking and proactive view of the customer, helping to identify who is likely to default on a debt, and when. Using such insight will enable lenders to create successful contact strategies.

With so much change in the financial services environment, it can be difficult to look to the future and the challenges it holds. With the impact of the cost-of-living crisis reaching far and wide, there’s a real need to fully understand customers and their attitudes to debt. In particular, it’s critical to get a solid understanding of which consumers can’t pay - and protecting them - and effectively managing those who won’t pay.

The aim of the Consumer Duty is to ensure fair treatment of customers throughout their financial lifecycle. The reason why many financial services fail, especially in debt collection where we see expensive litigation and enforcement, is because debtors often feel mistreated. Our survey results show that quite a significant proportion of the population (15%) would choose to ‘do nothing’ if they couldn’t pay an unexpected bill. There is still a tendency for people to ignore chasing from lenders, as well as being reluctant to contact them for support.

3. Provide self-service options

In our survey, we asked people how they would prefer their lender got in touch if they were falling behind in their payments for a loan or mortgage. The results were very mixed, reflecting a real need for omni-channel services within this sector.

18% preferred to be contacted by post, 15% by telephone call, 16% via a text message and 12% by email. 9% preferred to be contacted via a mobile app, the same amount as those who preferred to engage with their lender at a branch. Clearly face to face communication is still important in some of the population’s financial lifecycle.

The results for this question specifically may reflect the nature of the situation. Debt is a highly sensitive and embarrassing topic for many. As our survey showed, debtors may not admit they have a problem and prefer not to actively seek help and support. Therefore, the type of communication people prefer will reflect those needs. The spread of preferences across the varying channels identified in our survey suggests people have different needs and prefer to engage in different ways. Banks and other lenders need to adapt their communication strategies to reflect that.

Self-service works for some people, but others will prefer the human touch. Some may not be able to visit a branch, especially with widespread closures, but some will be unable to engage digitally due to a lack of online access or skills.

To make successful debt collections a reality, customer journeys need to be designed with integrated touchpoints, offering customers the opportunity to pay on their terms via the channels they use and are comfortable with.

4. Integrated supply chain

To prevent bad debt, reduce operational costs, and make sure customers are cared for throughout their financial lifecycle, structured and proactive engagement is required. This can only be achieved with robust and well-managed data and analytics, supported by an appropriate service management model. This model should include not only the management and monitoring of in-house customer service teams’ activities, but also those activities carried out by other third parties within the supplier ecosystem.

Working with a Systems Integrator you can leverage sophisticated technologies such as Big Data, AI and Internet of Things (IoT) to provide real time insights into consumer behaviour and preferences. Using that insight, financial services providers can create those personalised customer journeys that consumers are looking for.

Next Steps

Unfortunately, the work by lenders to point people to the support that’s available, either from themselves or from the network of charities, hasn’t got through to consumers. There are still many in the population who either aren’t aware of the support available or are choosing to ignore their financial worries, rather than reaching out for the support that’s available.

At Sopra Steria we believe it’s time for change. Lenders who are proactive in their approach, revisiting their existing vulnerability and customer engagement methods will be better placed to handle the increase in demand for support we’re seeing from customers. As the cost-of-living crisis continues and Consumer Duty increases scrutiny and pressure on the sector, creating a solid foundation of customer-centric data and analytics will help teams to deliver compliant, personalised and supportive services right through the crisis and beyond. 




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