The era of responsible lending began back in 2011, when the Consumer Credit Directive came into force. However, with reports in 2017 that unsecured consumer credit in the UK has topped £200 billion for the first time since the global financial crisis, it’s apparent that truly customer-first lending and collections is not with us yet.
Clearly, more needs to be done. A customer-first approach works for both lender and consumer respectively. The former is able to accrue at least some of the money they lent out; the latter benefits from a repayment schedule that is appropriate to their income, outgoings and lifestyle.
To make this a reality, we believe that better use of data is essential. Using extensive, deep and contextualised data, lenders can derive the insight they need to make responsible, informed and appropriate collections decisions, based on a true single view of their customer. In this blog, we’ll look at how to create customer-first collections using a three-step approach.
Step 1 – Understand the scale of the challenge
While forms filled out prior to lending answer a few questions, it’s always been tough to get a full view of a customer. Indeed, very few people would be able to give an accurate depiction of their incomings and outgoings if asked on the spot, meaning lenders won’t get a full view purely from what they asked at point of application.
This is backed up by recent stats from the FCA, which look at customer delinquency and missed payments in the early stages of lending agreements, indicating that there’s a big challenge around confirming that the customer can afford the debt they’re taking on.
The sub-issue here is around the financially vulnerable. Our experience shows that the most verbal and open borrowers are likely to be those who know they can afford their repayments. Those at risk may well stay silent until it’s too late. Going customer-first and data-centric is the only way to stop this trend continuing.
Step 2 – Find detail in the data
We all know about how much data is available for lenders to use right now. Yet, it’s often the case that a bank (to take one example) only sees the information that it owns. Therefore, if that data doesn’t highlight a vulnerable customer, the lender might not know that they could be making a risky lending decision.
This is where a holistic single customer view really helps. A wider dataset might reveal that a customer is relying on short term loans to supplement their income, or taking out regular cash advances on a credit card. In this kind of instance, the decision might be to refer the customer to an organisation like the Citizens’ Advice Bureau (CAB), so that they can discuss their financial difficulties and find a resolution that works for everyone.
A ‘prevention is better than cure’ approach is helpful on both sides and builds trust with customers (and the FCA!).
Step 3 – Use human help
While essential to customer-first collections, data can only tell us so much. Specialist staff also have a huge role to play when dealing with the financially vulnerable, whether that’s undergoing adequate training in consumer vulnerability, handing off the query to a third party like the CAB, or in assessing that a case is a matter for a litigation team.
But this kind of considered, human decision-making rests on data becoming insight and being able to identify that something warrants a closer look. This comes back to the point about a single customer view that extends beyond the walls of any one organisation. Customer-first collections relies on good income and expenditure data, analysed well and acted upon correctly.
Technology and data have given lenders the ideal opportunity to be more customer-first, making informed, intelligent decisions and escalating cases in the right way. This brings with it numerous benefits, not least greater profitability, lower risk and improved customer relationships.
In essence, it’s all about gaining a deeper view of income and expenditure and enhancing the understanding of the customer. This methodology that will demonstrate that lenders have their customers’ figures in mind, as well as their own. While every business’ customer-first approach will differ, our three step plan is a good place for any to begin.