A new era of consumer data: Enrich your data strategies to identify and predict vulnerable customers

Continued and relentless macroeconomic turbulence across the 2020s, including high interest rates, record high food and goods prices, worldwide political and social upheaval, and even the backlogs of NHS appointments, have caused stress for consumers in the UK, calling for them to have a high level of endurance and resilience.

Weathering a prolonged storm does have an impact - the Financial Conduct Authority (FCA)’s Financial Lives research reveals that 27.7 million UK adults now show characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability.

StepChange’s personal debt statistics reveals that the ‘cost of living increase’ is now the most common reason for debt, cited by one in four (25%) of their clients.

Supporting vulnerable customers is nothing new – what is more recent is the shift regulators are taking to outline in greater detail their expectation that firms must take greater responsibility and accountability for preventing consumers at risk of vulnerability from harm. Whilst also advising firms to be more inclusive towards vulnerable consumers, offering them greater choice and empowerment than before, rather than purely making ‘responsible adjustments’. This is evident in the FCA’s Consumer Duty guidance which specifically calls out with greater emphasis the need to support vulnerable customers in addition to treating all consumers fairly. The FCA is not alone in its drive towards better support for vulnerable consumers with other regulatory bodies such as Ofcom, Ofgem, Ofwat, to name a few, also providing vulnerable consumer guidance for their members.

4 key drivers of vulnerability outlined by the FCA:

1. Health - health conditions or illnesses that affect the ability to carry out day to day tasks
2. Life events - major life events such as bereavement or relationship breakdown
3. Resilience - low ability to withstand financial or emotional shocks 
4. Capability– low knowledge of financial matters or low confidence in managing money
   

Consumer vulnerability is fluid – it can be temporary, sporadic or permanent and everyday life circumstances can result in any person experiencing vulnerability. Consumers can move in and out of vulnerable states and may show vulnerability characteristics in some categories but not in others.Examples of this include job losses, bereavement and divorce.

This complexity poses quite a challenge for businesses and regulators alike as identification, prediction and journey treatments at scale using big data are traditionally set around indicators at a high level, which infrequently change over time, rather than constantly changing statuses which better reflects consumers’ vulnerability volatility – at times leading to inadvertently excluding consumers classed as vulnerable when not updated regularly.

The contemporary position, which the FCA aligns to, is to view vulnerability as a spectrum, which customers can move up and down depending on their circumstances.

The spectrum starts with identifiers of vulnerability, which singles out those most at risk of financial or non-financial vulnerability, moving to financial stress indicators, where vulnerabilities are starting to crystallise via financial stress, and the final stage, financial difficulty, where these vulnerabilities have resulted in consumer harm and are evident through financial harm indicators.

TransUnion, specialists in financial indicators, has partnered with the Vulnerability Registration Service (VRS), a not-for-profit charity which offers consumers a single platform to self-register their vulnerable status.

This exclusive partnership will enable VRS to work towards its aim of creating a central route for consumers to share their vulnerability and, for TransUnion, grants the ability to combine non-financial and financial indicators and share that information with clients - the first Credit Reference Agency to offer this. This combined view gives lenders greater understanding of consumer vulnerabilities and a fuller data picture, which businesses can use to support their consumers.

Vulnerability is complex by nature but it’s a challenge that must be addressed. There’s more pressure than ever with continued macro-economic turbulence and regulatory pressure on businesses to take greater accountability in treating vulnerable customers fairly, inclusively, and avoiding causing them foreseeable harm.

The FCA defines four drivers of vulnerability as; Health; Life Events; Resilience; and Capability. Each of these categories can be identified and detected with financial, non-financial or a combination of indicators. The stage of vulnerability that a consumer is experiencing can be mapped to three stages of the vulnerability spectrum: signs of vulnerability, financial stress indicators and financial difficulties.

For each stage TransUnion can support businesses with key data indicators, allowing them to leverage these insights to identify consumers showing signs of financial stress, and take action to help prevent them from encountering further harm.

TransUnion has partnered with VRS to enhance its vulnerability dataset with non-financial indicators, enabling an improved view of a consumer’s holistic vulnerability, and fuller coverage of the four categories of vulnerability drivers outlined by the FCA. TransUnion are proud to be the first Credit Reference agency to offer this enhanced data, which will enable businesses to better serve their vulnerable customers.

If you're interested in learning more about how you can bring vulnerability insights into your customer streategy download our Consumer Vulnerability: Help Improve Customer Outcomes with New Data Concepts eBook.