Getting It Right in the Changing Affordability Landscape
Affordability: A history of product innovation
As a pioneer in affordability, TransUnion is deeply invested in the practice of optimising affordability checks to help consumers and businesses achieve more positive outcomes.
Our history of investment in the consumer affordability space and how we support consumers and businesses to arrive at good outcomes can be bucketed into:
- The 2001 launch of affordability to the UK market. We initially developed Affordability Report after high street banks reportedly struggled to identify consumers who couldn’t afford their repayments. The UK’s digital banking ecosystem was in its infancy, and early product releases included cutting-edge, web-service credit reports and daily alerts and credit monitoring, enabling organisations to be more proactive. Between 2005 and 2019, Affordability Report evolved with enhancements to help with new consumer lending applications and optimised management of customer accounts during their lifecycles.
- The early 2020s drove new focus on affordability and an opportunity to evolve the way data solutions and insights could be used whilst responding to specific economic challenges. With consumer behaviour and confidence impacted by the COVID-19 pandemic and the cost of living crisis, a better understanding of income verification, payment screening and income shocks was essential. Renewed focus also paved the way for innovation with cost of living and rental model updates using API enhancements.
- In 2024, TransUnion was the first UK credit reference agency to launch trended affordability data. This optional service is integrated into our Affordability Report product, the feature empowers clients to predict with greater accuracy the future affordability of consumers, enabling more accurate assessments and improved credit risk performance.
What is Trended Affordability and how can it help your business?
Trended Affordability builds on lessons from our trended data product TrueVision, which provides a trended view of traditional credit risk attributes. It incorporates new algorithms, attributes and a new score that can help clients understand the unique patterns of each customer’s affordability position over time.
By providing additional insights based on a customer’s affordability position over the last 12 months, Trended Affordability can help lenders make more informed predictions on consumers’ future financial behaviours and stability. This can improve credit risk assessments and enhance affordability evaluations, helping lenders make responsible lending decisions with fair outcomes for both the business and consumer.
Kelli Fielding, Chief Product Officer at TransUnion in the UK, leads the team bringing the data to market and is excited by the potential of the product: “Trended Affordability is the biggest development in affordability reporting in recent years, setting a new standard for financial decision-making and reinforcing our continued investment in innovation. As the first to provide trended data on affordability that delivers a more robust view of a consumer’s affordability position, we’re enabling our clients to stay ahead in the market by making more accurate assessments of affordability whilst mitigating risk.”
The enhanced Affordability Report combines trended and traditional credit and affordability data to create a new set of trended algorithms and a Trended Affordability Score. By predicting a consumer’s future affordability position, the feature typically delivers an uplift in applications accepted whilst maintaining the same bad rate.
“By providing more precise affordability predictions and improving subsequent credit risk performance, Trended Affordability adds significant value to client decisioning. With many of the new trended attributes outperforming existing affordability reporting, we can deliver more accurate assessments for our clients, as well as enhance outcomes for consumers. The use of trended data not only sets a new industry standard but also reinforces TransUnion’s position as a market leader in affordability assessment, helping protect consumers and support financial resilience in navigating economic uncertainties.”
Combining credit data with Open Banking data can give businesses the edge in affordability
Better understanding consumer affordability should involve integrating different datasets. For example, Open Banking data provides a holistic view of a customer’s income and expenditures and a true view of their cost of living. It also allows you to identify vulnerabilities via spending patterns and other transactions that impact affordability.
Our transparent, granular and trusted Affordability Report, when used in conjunction with an element of Bud’s Open Banking solution called Assess, can help clients to make informed, automated and responsible new lending decisions based on consented, categorised transaction data, reducing manual processes and writing more business with an improved risk understanding at a granular level.
Putting your best affordability foot forward
Optimising your credit risk strategy in an evolving marketplace requires obtaining the best possible understanding of your customers. With household budgets squeezed, regulatory updates from the FCA and other regulator updates place a requirement on lenders to do all they can to ensure consumers can access appropriate credit products — and more good outcomes are delivered.
These developments are driving the industry to focus on more effective identification and support of customers experiencing (or at risk of) financial hardship — specifically considering pre-delinquency and the idea that prevention is better than a cure. Accurate, reliable information and a proactive approach are central to this, along with a commitment to putting the customer at the heart of a successful credit risk strategy.
Doing the right thing, by both consumers and the bottom line, requires lenders to concentrate on three key areas:
- Identification. With customers’ financial circumstances changing constantly, one of the biggest challenges is to proactively identify who customers are, what they can afford (and what products may be appropriate), and whether they’re struggling (and could suitable adjustments be offered). All this means having the right data at the right time from internal and external sources (including additional consented transaction data provided by Open Banking), and the ability to turn this raw data into meaningful insights. Only then is it possible to determine the most appropriate actions to take.
- Engagement. If consumers are identified as struggling, they need to be engaged and communicated with in ways that work best for them. This means being able to monitor and switch between customer-preferred channels to keep communications timely and consistent. Ideally, the contact approach will adapt intuitively to customer behaviour, providing the most appropriate next best action.
- Resolution. In the case of struggling customers, such as those with pre-arrears or with low disposable income, having accurate data and robust insights means lenders can provide early support by pinpointing suitable solutions (across the customer lifecycle). They can provide recommended treatment options specific to customer circumstances and monitor agreements made. There’s more control, risk management is improved, and the customer experience is enhanced.
Data-driven insights like affordability assessments provide a highly effective way for lenders to better ensure customers are being treated fairly and accessing suitable credit solutions at various stages. Using the data and technology available, such as advanced insights from products like Trended Affordability, for a full and balanced understanding of a customer, lenders can assess existing financial situations, and validate affordability and income quickly, simply and without the need for manual intervention.
Strengthen your customer insights and affordability processes
Forward-thinking businesses need to invest in their customer affordability experiences to drive convenient processes and quick responsible decisions with the customer at the centre.
If you’re interested in learning more about TransUnion’s work in the affordability space, and development of consumer-focused products and enhancements, get in touch with our team or take a look at our latest pieces of thought leadership.
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