The Coronavirus pandemic created unprecedented challenges throughout 2020, and as a result, there’s been a huge spike in the number of consumers seeking financial help or alternative ways to manage their money.
Colin Brown is the CEO of Arzya and a leading figure in the lending, insolvency, credit and debt recovery space. Since taking on the role of CEO in 2009, Colin has played an integral role in bringing a number of innovative software solutions to the market, designed to help improve the financial health and well-being of businesses and people all over the world.
Here, Colin discusses some of the ways the industry can work to better support consumers over the coming year.
With unemployment rates rising and businesses across all sectors facing uncertainty, 2020 continued to test the nation’s financial resilience, forcing millions into financial hardship. In many cases, consumers were in this position for the first time, unfamiliar with the debt management process and unsure on the best and most appropriate course of action to take.
Since last March, the nation’s borrowing and spending patterns have changed significantly. In July, the Bank of England reported that UK households borrowed more through overdrafts and credit cards than they paid off, a big contrast to the previous months and a trend that’s likely to continue throughout this year. Debt repayments also took a hit during the crisis.
It’s essential that during a time of great stress for many, consumers avoid letting their borrowing escalate or they run the risk of falling into arrears – something that can have a detrimental impact on a person’s financial wellbeing longer-term.
This uncertainty is only set to continue over the coming months. Government analysis shows that claims for Universal Credit reached 5.6 million in July 2020, with 42 per cent of claimants in the ‘searching for work’ group, an increase of 6 per cent since March 2020. Young people make up a greater proportion of applications for Universal Credit than they did pre-pandemic, with 20.5 per cent of claimants in the 20 – 24-year-old age group.
Taking all of this into account, early analysis by the Money and Pensions Service predicts that the number of people needing help with debt will climb for at least the next 12 months – increasing by over 60 per cent and peaking at the end of 2021, highlighting a very real need for reliable and easy to use debt management solutions.
The closure of bank branches and long waiting times on phone lines has made it increasingly difficult for consumers to receive basic banking services or advice during the pandemic. No matter the circumstances, applying for credit can feel overwhelming and often difficult to understand so it can come as no surprise that those struggling financially – particularly in this climate, might be reluctant to discuss their financial situation with a stranger.
As a result, there’s a growing need for lenders to offer digital solutions that are accessible from anywhere, at any time, to ensure consumers can access the support they need.
With millions of people at risk of falling into debt, it’s likely that the collections processes will also be put under significant pressure. After payment holiday periods expire, lenders will need to anticipate a variety of different customer needs and behaviours depending on their financial situation. The level of support will vary and it’s critical that lenders maintain a focus on realistic levels of affordability, with Open Banking technology enabling quick and simple affordability checks to help speed up this process.
By leveraging the huge opportunities presented by new technology, the industry can continue to help customers navigate the path back to financial health and we’ve already seen a number of new and exciting products developed. The emergence of these new digital solutions has also resulted in the automation of many processes, allowing consumers to engage with lenders via their smartphone, tablet or PC – at their own convenience, making the process far easier.
Taking into account the unique nature of personal finance, these solutions can also aid lenders in understanding the different types of vulnerability risk, personalise debt repayment plans, automate the capture of income and expenditure data and ensure the fair and responsible treatment of consumers, whilst also alleviating the pressure on contact centres.
As we look ahead to this coming year, the ability to respond to these changing market conditions is crucial. Working closely with lenders we hope to reframe the conversation around money management and seek to offer a streamlined, bespoke customer experience that maximises a digital journey.