• Steve Round, Co-Founder at SaaScada


• 18.01.2023 11:30 am
#finance

As the cost of living tightens its grip on household finances, many consumers are finding themselves struggling to keep up with soaring mortgage rates. The Bank of England has warned that four million households will face more expensive mortgages next year, with rising interest rates and inflation putting finances under strain.

The Financial Conduct Authority has now released guidance to set out how firms should support their customers to manage their mortgage payments as prices soar

The guidance covers how automated processes and digital contact can help FS firms to support consumers, as well as the scope firms have to vary contract terms for borrowers who want to reduce their monthly payment. It also explains why firms should offer more flexibility when providing forbearance to help customers avoid or reduce any potential payments shortfalls.

But how can FS firms use these guidelines to drive financial inclusivity and benefit their customers?

Banks must be ahead of the curve

It is interesting to note that the FCA’s guidance is predicated on offering options to customers who indicate that they are experiencing, or reasonably expect to experience payment difficulties, or who have missed a payment. One could safely assume that by the time an individual notifies their lender of these difficulties, they may well already be considered a vulnerable customer.  Wouldn’t it be preferable if banks could identify those who are potentially headed in that direction before they become vulnerable?

This would represent a win for the lender and the customer - both in terms of getting out in front of the financial problem and supporting the mental health of customers by allowing them to see early that there are options available.

Financial vulnerability is more widespread than ever

For some customers, the memory of the housing crisis in 2008, and the skyrocketing interest rates and resulting housing foreclosures in the 1980s, breeds fear of admitting that there is a problem.  Banking has moved on a long way since then and no bank wants bad debt so they are as keen to get on top of the problem as the customer. 

In June of this year the FCA sent a Dear CEO letter urging banks to act early to understand the changing pressures on consumers. The Institute of Fiscal Studies estimates that the poorest families may face average inflation rates as high as 14%.  In fact, the letter cited that 27% of the population have low financial resilience, with that figure likely to increase in the coming months.

When combined with a high demand for credit and rising interest rates, they have warned that a wider group of consumers will find themselves in financial difficulty. Indeed, for some consumers, this will be the first time they have experienced financial difficulty, with more and more finding themselves financially vulnerable.

Data can pave the way forward

So how do financial institutions identify those who might soon experience financial vulnerability? Data is key to enabling banks to get out in front of the problem. It could be spotting that income has ceased to be paid into their usual current account, or a current account balance that is reducing each month. These trends could be indicators that a customer may soon start to struggle with their repayments.

Banks operating on legacy systems that have been built over time with disparate product silos and data structures will struggle to paint a full picture of their client’s financial health.  Accordingly, gaining customer centric insights might be a slow, laborious and expensive process that could struggle to get enthusiasm from the board. But in the current economic climate time is not on the customer’s side.

An opportunity for banks to make a real difference for their customers

We are now in a situation where one in six UK adults have no savings, and millions of households are under intense financial strain. Banks must work with their customers to help them avoid or mitigate financial vulnerability - but getting the right data at the right time is essential. Data will enable FS firms to present their customers with options before it is too late, and also to protect themselves from bad debt and build brand loyalty with their customers. 

Through financial inclusivity, banks have the power to change lives - they just need the will, and real-time customer insights, to make it happen.