Getting it right in the changing landscape of affordability

Getting your credit risk strategy right when the goalposts are constantly shifting is a major headache. Levels of unsecured debt in the UK are the highest since 2008, standing at £200.8 billion in June. This represents an average household debt of nearly £7,500, with one in six customers facing a financial struggle in one form or another. Stagnating wages and high inflation rates for a sustained period of time continue to put a squeeze on living standards and possible interest rate rises might tighten things further.

At the same time, legislative changes continue from the FCA and other regulators, and principles like Treating Customers Fairly (TCF) permeate the financial markets. These put pressure on lenders to do all they can to ensure that customers get the credit solutions that are appropriate for them. Delivering better customer outcomes requires more transparency, access to the right data in real-time, and an innovative mindset.

These developments are driving the industry to focus on more effective identification and support of customers experiencing or at risk of financial hardship, focusing on pre-delinquency and the idea that prevention is better than 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 customers and by the bottom line, requires lenders to focus on three key areas:

With customers’ financial circumstances changing constantly, one of the biggest challenges is to identify proactively customers who are, or could be, struggling. This means having the right data to hand, at the right time from internal and external sources, and the ability to turn this raw data into insight. Only then is it possible to determine the most appropriate actions to take.

Once identified, customers need to be communicated with in the way that works 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.

Where customers are struggling, having accurate data and robust insight means that lenders can pinpoint the right solution, across the customer lifecycle, from a fully informed position. 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 improved.

Data-driven insights such as affordability assessments are proving to be a highly effective way for lenders to ensure that customers are being treated fairly and accessing the right credit solution across the customer lifecycle. Using the data and technology available for a full and balanced understanding of a customer, they enable lenders to assess the existing financial situation and to validate affordability and income quickly, simply and without the need for manual intervention.

Callcredit has developed a range of affordability solutions, for example, that enable lenders to seamlessly process new applications so that they can assess customers’ current financial situations, validating affordability and income without the need for manual intervention.

With many consumers suffering from an unprecedented squeeze on their disposable incomes, a robust affordability assessment is an increasingly crucial aspect of credit management, enabling lenders to fulfil their commitments to customers, regulators and their shareholders.

To find out more about how to harness the power of affordability data, download our report – The New Affordability at the link below.

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