• Kal Bukovski, Director of Academia & Research at Sopra Steria


• 04.06.2025 04:00 pm
#AIinFinance #FinancialInclusion

With the average UK household owing around £65,000, and total UK household debt exceeding £2.1 trillion, the need for effective financial support has never been more apparent. Traditional indicators of financial difficulty, such as late payments or high levels of credit use, can often fail to capture the earliest signs of distress. As a result, banks may miss opportunities to provide timely and impactful assistance, leading to more customers who find themselves in financially vulnerable circumstances.

In light of this, many high street banks are adopting a more proactive approach to identify and support households on the brink of financial difficulties. This shift aligns with the FCA’s Consumer Duty, which came into force in 2023, and aims to set higher and clearer standards of consumer protection. With Consumer Duty requiring firms to put their customers' needs first, AI presents a major opportunity for banks in complying with the regulation and identifying vulnerable customers earlier to prevent further hardship.

Why more households are slipping into debt

Earlier this year, a UK government report confirmed that factors like the rising cost of living, higher interest rates, and stagnant wages, all contributed to rising household debt. The report showed that the knock-on effect was increased levels of insolvency and personal bankruptcy. It is this cycle of debt that often forces individuals to resort to high-cost credit, skip essential payments, or rely heavily on overdrafts.

The financial strain many households face can also lead to serious real-world consequences, including increased stress and anxiety, reduced quality of life, and strained relationships. Additionally, reliance on high-cost credit options can trap households in an even deeper and seemingly never-ending cycle of debt. With more economic uncertainty on the horizon, an increasing number of households are potentially moving closer to financial difficulty. This underscores the urgent need for effective financial support and the critical role financial services firms can play in helping their customers to navigate these challenging times and regain financial stability.

AI’s role in early intervention

For banks, meeting Consumer Duty requirements while making sure no vulnerable customer slips through the cracks can feel tough to juggle. But with effective use of AI and data science, it’s possible to transform the way support is delivered. It can offer early, detailed insights that flag when someone might be heading towards financial difficulty.

Specifically, advanced modelling techniques can sift through huge amounts of data to spot patterns. For example, a retail bank could use a predictive machine learning model to analyse historical data and identify customers at risk of financial stress based on previous behaviours. By examining trends over months or even years, the model detects patterns, such as a gradual increase in the use of overdraft facilities, intermittent changes in savings balances, or a history of large transfers between accounts. The predictive risk model also considers external factors, such as regional economic trends or global recession indicators, to contextualise individual financial behaviours.

While traditional credit assessments can be backward-looking, these type of AI models incorporate predictive analytics to flag potential risks early. This allows banks to intervene with customers early, and offer tailored solutions like budgeting tools, payment plan adjustments, or financial counselling.

AI will power the new financial inclusion era

Using AI to identify and support vulnerable customers is just the tip of the iceberg for banks. In fact, AI presents a new opportunity for them to move from reactive risk management to real-time financial partnership, where customer support is embedded throughout the user journey. Leveraging AI more broadly to assess customer financial situations, risk tolerance and goals, and automated investment options, could offer more opportunities for financial inclusion. For example, matching interested individuals and households with assets or portfolios, at costs suitable to their means.

AI is poised to be the focal point in advancing Open Finance, enabling deeper collaboration between banks, budgeting apps, credit providers and other third parties. By securely sharing and analysing data across a diverse range of financial products, such as investments, insurance and pensions, AI can allow firms to deliver bespoke, cross-platform support. This could be anything from tailored savings prompts to dynamic credit recommendations, all based on a customer’s real-time financial picture. The result is a more inclusive and responsive financial ecosystem, where services are shaped around the individual, not the product.

Banks must prioritise supporting customers

Supporting vulnerable customers is no longer a compliance tick-box, it’s increasingly becoming a strategic differentiator. Proactive, personalised interventions can build long-term trust and improve customer retention. With both the technology and regulatory mandate now in place, banks are well placed to intervene earlier and offer meaningful support before customers reach a crisis point. AI brings the scale, speed and sophistication needed to deliver that support in a way that’s timely, tailored and effective.

As AI continues to evolve alongside Open Banking, Open Finance and customer data-sharing initiatives, the financial services sector is in a strong position to lead a cultural transformation with empathy, innovation and responsibility, ensuring no one is left behind in a rapidly-changing economy.