Cost of living crisis: financial services providers can stop potential tidal wave of problem debt
Research* carried out by PA Consulting, the consultancy that’s bringing ingenuity to life, has found that as the cost-of-living crisis bites, consumers are increasingly at risk of problem debt as they turn to further loans whilst reducing payments towards current debt.
Nearly two-thirds (63%) expect their ability to cover their fixed costs to be impacted within the next six months, seeing them turn to alternative finance:
- 53% are currently using, or plan to use, Buy Now Pay Later schemes
- 46% are currently using, or plan to use, payday lenders or alternative lenders
People are also turning to friends and family, with 51% saying that they have borrowed, or plan to borrow from them within the next six months.
In addition, consumers are looking to reduce costs through paying less towards current debts with 24% planning to pay less into overdrafts and 24% planning to pay less towards their credit cards.
Financial services experts at PA say that clear communication from FS providers to their customers is critical, making it clear how they can assist. At present, just 22% of those surveyed believe their financial services providers are sympathetic to their needs.
Jason Hill, head of banking at PA Consulting said: “Our data paints a clear and worrying picture for UK consumers who, as they struggle to cover their monthly costs, are not only turning to potentially unregulated finance but also paying less towards their current debt - further exacerbating the issue. Financial services providers are intent on supporting their customers, but they must act now to appropriately communicate this and encourage them to be forthcoming with their financial concerns. There’s a gap that must be bridged.”
In addition, despite an increase in digital services, the survey found that customers want face to face interactions – with 45% of people preferring in-person advice for specific support and help. Furthermore 46% are either accessing, or seeking to access, financial literacy classes.
Commenting on this, Caroline Wayman, financial services regulatory expert said: “Financial services providers will have recently dotted the i’s and crossed the t’s on their implementation plans for the New Consumer Duty (coming into effective next year) – a regulatory change that is driving genuine customer centricity. But, as the cost-of-living crisis deepens, support for consumers obviously cannot wait until July 2023. There’s clear demand for in-person support and providers must react quickly to this, considering how they can do things differently to ensure help is accessible for all.
“Some providers are already doing great things and by stepping in and supporting people to make good choices, firms can build long lasting trust and confidence.”