The UK faces a looming crisis in personal debt. Even before COVID-19, the Money Advice Service, an independent organisation set up by government estimated that 8.3 million people in the UK were over-indebted. 10 months after the first lockdown in March 2020, 14 million Britons experienced a direct negative impact on their income, 4.3 million fell into arrears with utilities, council tax or rent and 2.8 million used high-cost credit to make ends meet.
The UK Government's Debt Respite Scheme (Breathing Space) will help many, however as furlough schemes approach their end and mortgage payment holidays begin to expire, many borrowers face a potential cliff edge. The scale of the problem could be huge; press reports suggest that over 4.7 million payment deferrals have been granted for UK mortgages, personal loans or credit cards.
Vulnerable customers are particularly susceptible to harm from debt. Key drivers of vulnerability often overlap and can include negative life events, deprivation, low financial resilience and ill health. Vulnerability also correlates strongly with mental health problems. Our analysis shows that vulnerable customers are not simply a small minority of sub-prime borrowers. They number in the millions and include the temporarily vulnerable, such as individuals or families affected by unexpected economic shocks like illness or job loss.
These potential challenges create an opportunity for lenders to build on the goodwill generated during the pandemic by treating vulnerable customers fairly, constructively and with empathy. At the same time, lenders need to ensure they meet much tougher regulatory requirements than in previous credit downturns. The FCA’s emergency COVID-19 regulations include an increased focus on vulnerability, and new guidance requires firms to actively manage persistent debtors and prove that vulnerable customers are treated fairly.
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Unfortunately, there is often a gap between these expectations and lenders’ available responses to distressed customers’ common pain points. Typically, interventions are blunt instruments that treat the symptoms of excessive debt without curing the underlying causes. They rarely consider customers’ financial understanding, mental health or wider circumstances. And all too often they push customers towards phone-based interactions. This not only increases costs but makes it hard to provide seamless service, due to a lack of joined up systems. Phone conversations also can impede effective engagement, since they expose many vulnerable customers to feelings of embarrassment, awkwardness or harassment.
To close these gaps, lenders need to move fast to develop customer-centred responses that allow them to gather customer information faster, analyse risks and behaviour more effectively and intervene earlier. The ultimate goal should be to engage effectively and proactively with vulnerable customers, achieving better outcomes for customers and lenders alike.
To deliver this standard of service, lenders need to combine a human-centred design approach backed up by a digitally-enabled operational spine. Accelerating customers’ ability to use modern data-enabled digital services will help lenders to deliver customisable, timely and flexible interactions. That will encourage greater self-service by customers, taking pressure off contact centres and ensuring that – when they do take place – personal interactions are valuable to both parties.
Such an approach is not without its obstacles, especially for established lenders reliant on legacy technology or with customer information divided between databases and organisational silos. These barriers, together with over-reliance on manual processes, can make it hard to provide seamless experiences – let alone tailored, insightful interactions.
To overcome these hurdles, lenders should follow five key patterns for success:
Identifying and designing target customer experiences is a key enabler of these patterns of success. Focusing on prioritised elements of target experiences makes it easy for organisations to make progress at pace, improving incrementally rather than investing heavily in ‘big bang’ transformations that take a long time to make a difference to customer experiences.
Furthermore, improving customer experiences quickly will also deliver early, tangible returns on lenders’ investments all the while delighting their customers. Better experiences allow lenders to reduce operational demands, lower customer contact costs, reduce the costs of sales and reduce staff turnover – all of which strengthen financial performance. Our experience shows that a one per cent improvement in customer satisfaction is typically matched by a five per cent reduction in operating costs.
Integrating user-centred design with modern digital engineering holds the key to lenders’ ability to achieve strong alignment between vision, implementation and returns on investment. In turn, that will ensure not only vulnerable customers are treated fairly, but that lenders optimise their own performance and affirm their role in society.