Ways lenders can navigate the current economic uncertainty

Continued inflation, rising interest rates and global cost-of-living struggles will inevitably lead to increasing numbers of customers falling into arrears. Lenders will face the dual pressures of increasing provisions on the balance sheet and the rising operational expense of supporting their customers through this period.

This tough macroeconomic environment, as well as changing financial regulation, have created a challenging landscape for lenders to operate in. Lenders of all types and sizes constantly need to examine the way they operate to adapt and increase the quality of outcomes for customers. Organisations must act now to protect and support all customers, particularly those who are vulnerable – identifying those at risk of falling into arrears and supporting those already in arrears.

Understanding customers’ attitudes to debt

Our recent UK research, for instance, shows that a fifth of consumers (19%) aren’t confident they are able to pay all their bills and 30% fear they won’t be able to pay an unexpected bill – highlighting a significant lack of confidence when it comes to personal finances. 

When asked what they would do if they found themselves unable to pay a bill, nearly 60% say they would seek support from friends or family members, but 15% would do nothing, which is extremely worrying.

The lack of reliable and robust data throughout the consumer lifecycle prevents many organisations from effectively communicating with customers or making informed decisions. They cannot form a 360-degree view of their customers, which hampers their ability to adopt a consumer-centric approach to identify and support ‘at risk’ people. Over a third of consumers (36%) say they never get a personalised service from their main bank.

Leveraging data to offer more personalised services

With the impact of rising inflation and supply chain struggles reaching far and wide, there’s a real need to fully understand customers and their attitudes to debt. In particular, it’s critical to identify consumers who can’t repay the money they owe lenders to effectively manage and protect them.

Lenders must take the time to fully understand the different data sources available. Making good use of behavioural data, showing how a customer interacts with the organisation at different touchpoints, will give lenders insight and knowledge into how they are likely to behave in future and will allow them to offer more personalised services. 

Such insight can help lenders provide valuable financial advice and ensure their services suit each customer. It’s their role to guide customers through difficult times – educating and signposting them to third parties if needed to ensure they receive the appropriate amount of support.

Data analytics is key to making informed decisions

Investing in data analytics is key to ensuring the information is properly used to build different customer personas and segments, allowing for insight-driven decision-making, and creating personalised services. For example, predictive modelling of customer behaviour enables a forward-thinking and proactive view of the customer, helping to identify who is likely to default on a debt and when. Using such insight will enable lenders to create successful contact strategies.

Likewise, with a Systems Integrator, companies can use sophisticated technologies such as Big Data, AI and Internet of Things (IoT) to provide real-time insights into consumer behaviour and preferences. Financial services providers can use that insight to prevent bad debt, reduce operational costs, and ensure customers are cared for throughout their financial lifecycles.

Adapting communication strategies to customer preferences

Debt can be a highly sensitive and embarrassing topic for many, and debtors may not admit they are in difficulty and need support. The type of communication people prefer reflects those needs. Our findings show that 18% of consumers prefer the lender to get in touch by post if they are falling behind in their payments for a loan or mortgage, 15% by telephone, 16% via a text message, 12% by email, and 9% prefer to be contacted via a mobile app. 

Banks and other lenders must adapt their communication strategies to reflect the spread of preferences across various channels. There is a real need for omni-channel services within the sector to make successful debt collections a reality. Customer journeys need to be designed with integrated touchpoints, offering customers the opportunity to pay on their terms via the channels they use and are comfortable with.

Closing thoughts

Many people choose to ignore their financial worries rather than reach out for available support. Lenders must be proactive in their approach. By revisiting their existing vulnerability and customer engagement methods, financial services providers can better handle customers’ increasing demand for support.

As consumers continue to feel the deletes of wider global economic struggles, creating a solid foundation of customer-centric data and analytics will help teams deliver compliant, personalised and supportive services through the crisis and beyond.

About the author

Craig Wilson has been with Sopra Steria for over 5 years and became Head of Private Sector in 2019. He is a senior financial services professional, with significant business growth, risk and operational experience, with a particular focus on business transformation. Craig has a proven track record as a self-starter delivering business performance from theory/strategy to execution.