Empowering customers with credit education and freemium tools can help them better understand, monitor and manage their finances, aiding their financial well-being and resilience during economic turbulence.
Two positives to come out of the socioeconomic turbulence of the 2020s has been:
Across the financial services ecosystem, apps and platforms have been enhanced with rich financial information visualised using cutting-edge UI and UX. These tools inform users of their financial behaviours and situations and allow them to manipulate personalised dashboards. Effectively, we’ve entered an age of heightened financial experience (FX) that’s strengthening the relationship between lender and customer — previously sustained by face-to-face interactions — and assisting with strengthening financial wellbeing.
Credit education plays an important role in the modern lending journey. It helps consumers understand how credit-related information is used during the application process; how their credit scores are used to inform the credit they can access; and how it impacts their relationships with lenders and how their accounts are managed.
The author of the UK Government’s Financial Inclusion Report 2021-22 states: “To protect families’ living standards in a time of inflation, we also need to empower people to make the most of their money. As City Minister, I am determined that the financial services sector plays its part by ensuring that households have the right money management skills and access to appropriate products and services.”
For lenders, the cost of living crisis and inflation has signposted the importance — and value — of freemium services (whether in app or via a platform) that help consumers understand their credit information and financial situations.
Thanks to credit education initiatives in recent years, consumers have a greater understanding of credit scores. TransUnion consumer research highlights nearly a quarter of consumers understand their credit reports and scores and how they can help them achieve financial goals. However, that leaves three-quarters of consumers needing further help in understanding the true power of what they can do with the information in their credit reports.
Neil Costello, UK Marketing Director at Lowell, a Leeds-based debt collections agency, believes the way consumers are presented their financial information is crucial. This thinking has informed Lowell’s app development and customer strategy: “We wanted to make it the prominent feature in the app so our customers can see their credit scores for free. They can see what is positively and negatively impacting them and the rationale for that, which we think is really important to help them make the right financial decisions in the future.”
TransUnion partners with Lowell to offer its customers tools that help them better manage their financial health. Giving consumers a clear understanding of their credit reports, covering how and when they’re used, who owns them, and how the data they contain and their actions can impact them, helps empower them to get back on track and improve their access to financial products in the future.
Validating this approach, TransUnion insights show 72% of consumers who were classed by the credit report service as subprime at the time of registration improved their scores in the first three months of using the tool. Lowell’s use of credit educational tools and insights for customer management and improvement highlights credit education has benefits not just at the acquisition stage it can also have positive effects across the wider customer lifecycle, including pre-delinquency and into debt recovery stages.
The Money and Pensions Service defines financial wellbeing as; “…feeling secure and in control of your finances, both now and in the future. It's knowing you can pay the bills today, can deal with the unexpected, and are on track for a healthy financial future.”
Stretched household budgets caused by inflationary price rises and Russia’s illegal invasion of Ukraine means there’s a real concern of consumer vulnerability, a multifaceted, nuanced issue. Indeed, the impact of recent economic shocks means all consumers should be viewed as being at risk of becoming vulnerable.
Speaking on TransUnion’s Data, Strategies and Trust podcast, James Robinson, managing director – consumer interactive at TransUnion UK, emphasised the tools offered to consumers are key: “Let’s be honest… in the last year or so, if you could have predicted how much the cost of living could affect your bills, that would have been a fantastic, simple tool to give to everybody. That would be a great crystal ball to have in terms of, ‘Right, this is my data, what does it [price increases] mean for me?’ That’s where we need to get to.”
The positive message is the industry can support consumers to better manage their money, one of their foremost challenges. By delivering digital experiences that help consumers better understand their finances and manage their budgets, lenders can help improve consumers’ financial resilience and hopefully their future access to credit. As the economic outlook improves, the ambition for the industry should be to measure their customers financial well-being and seek to improve it.
Returning to Lowell’s Neil Costello, this approach is already bearing fruit: “We’ve done some analysis on those who use the [Lowell] app and the credit scoring compared to those who just use the app. We’re seeing engagement where the customer is setting up a plan quicker… that pays back in shorter period of time compared to those not using the app. So, customers using the free credit scoring are coming back on a more regular basis.”
This example demonstrates the positive impact credit education can have on a consumer’s outlook and decision-making. Looking ahead, the Consumer Duty regulations are likely to make financial wellbeing a more prominent area of focus.
Nearly 50% of Gen Z spend their entire monthly incomes on living costs. With budgets tight, authoritative, easy-to-understand information, and practical tools and digital products that let them monitor their spend, save and manage their accounts, have immediate and long-term value.
Interestingly the majority (92%) of Gen Z believe it’s important to have access to credit and lending products to achieve their financial goals, but it’s concerning TransUnion research found nearly three-quarters of UK teachers believe their pupils struggle to understand the importance of personal budgeting, saving and money management. Gen Z spend an estimated 12.4 hrs a week on average on TikTok. This platform is increasingly utilised as a search engine and features 7.2 billion videos (and growing) using the #personalfinance hashtag. This includes content created by “fin-fluencers,” and an obvious point of failure is whilst it is influential, it’s often unregulated, and recommendations may promote scams, risky behaviour or plain bad advice.
From a brand awareness and reputational perspective, this is an opening for lenders and FinTechs that want to lead in this space and make a difference. They can choose to use their expertise and budgets to deliver tailored, authoritative and branded content experiences across relevant digital channels to build trust. Ultimately, this can help improve consumers’ financial literacy and complement customer acquisition and loyalty strategies.
Better customer experiences help humanise a brand in a customer’s mind, and there are several levers’ lenders can pull to boost their CX (or FX to coin a more lending focused term).
Lending apps and web platforms are the most overt way to do this. There’s an array of proven and newly released products on the market, including our award-winning CreditView solution. For example, lenders can now allow consumers to simulate credit scenarios, helping them understand the impact of decisions beforehand, or credit mentor, an application focused on credit education aimed to improve their scores.
From a data operations perspective, strategies that leverage consumer data points and insights to truly understand consumer circumstances, and act in a responsible, caring and proactive way, can also have a positive impact on financial wellbeing. Objectives for achieving such insights include:
There’s naturally a fear that 1:1 interactions incur extra costs, but data-driven solutions underpinned by software can actually create efficiencies through automation and streamlined processes whilst at the same time helping customers make more informed decisions with positive outcomes.
Find out how you can build a strong, credit-based relationship, and give your customers the tools and power to monitor and manage their financial situations by downloading our ebook: CreditView: Using Credit Data Insights and Tools to Create Brighter Futures. Or visit our CreditView solution page for an overview of our solutions.