Covid-19 has created a completely unprecedented set of circumstances that are impacting different demographics in a range of ways. Across the UK there’s currently a redundancy rate of 8.2 per 1000 employees with thousands more at risk, and as we look ahead to next year the end of the government’s furlough scheme, mass redundancies, business failure and a no-deal Brexit all serve to create further economic instability for many of the nation’s households.
Here, we speak to Kristina Burwood-Ansell, Product Director for Collections and Tracing at Experian, Colin Brown, CEO of the Aryza Group and Martin Prigent, Director at Aryza UK and discuss some of the main issues the industry needs to consider.
Across the UK, redundancy rates are rising, applications for Universal Credit are increasing and Covid-19 continues to create economic instability, what action do you think the industry can take to better support consumers?
Colin: As unemployment rates continue to rise and thousands of self-employed people struggle to maintain a stable income, there’s been a big increase in the number of consumers seeking financial help or alternative ways to manage their finances. There’s also been a big increase in the use of unauthorised overdraft or high cost, short-term loans, which can often be detrimental to a person’s financial wellbeing.
We’ve seen a number of new and exciting products launched this year that’ll go a long way in helping to reframe the conversations around financial wellbeing and, ultimately, better support consumers. As an industry, we need to be prepared for the emergence of a new type of customer, one that will likely be unfamiliar with the debt management process, as well as also being prepared for an overall increase in demand.
Kristina: Despite the temporary measures put in place by the government, it’s important lenders take a proactive approach to support customers who’ve encountered a sudden drop in income or job loss. This approach can also help identify consumers who might be struggling financially for the first time, unfamiliar with the process or reluctant to seek help.
By drawing upon reliable, digital records the industry can offer a far more personalised approach to debt management, understanding the factors that may impact a person’s performance on a repayment plan and putting measures in place to mitigate any problems before they arise.
Martin: There are few tools and platforms on the market that don’t require the confidence of multiple stakeholders to make them work effectively. Currently, there are sprints taking place across the whole credit and debt industries to test and roll out new technologies and practices to help consumers. These work best when the stakeholders share a common vision of the need, the product and the correct outcome.
In the insolvency world, the Individual Voluntary Arrangements (IVA) industry responded quickly and positively to the Covid-19 pandemic, with creditors, practitioners and regulators unifying to offer more flexibility and support to those worst affected. It’s important this work continues into next year, with the latest figures showing another sharp rise in unemployment to 4.8 per cent by September, 0.9 percentage points higher than a year earlier and 0.7 percentage points higher than the previous quarter.
By leveraging the huge opportunities presented by new technology, the industry can continue to help customers better navigate the long and complex journey out of insolvency, or arrears, and onto a better financial path.
For people struggling financially, it can feel overwhelming. The process is often too complicated and knowing the best course of action can be difficult. How important is it that both consumers and lenders can generate an accurate and easy to understand picture of affordability before committing to a repayment plan?
Colin: It’s understandable that those struggling financially might be reluctant to discuss their situation with a stranger, in branch or over the phone, and we’re keen to help eliminate the hurdles that might push people into further financial hardship.
Digital solutions can automate much of this process, providing both parties with a quick and easy to understand way to explore affordability and vulnerability, and presenting the best outcomes for each individual. From our own research, we know that a higher proportion of consumers prefer to engage with lenders digitally, at their own convenience – either from their phone, tablet or PC.
Kristina: Despite the popular misconception, a repayment plan should always feel manageable, affordable and sustainable for the consumer. According to our analysis, approximately 50 per cent of people break a repayment promise within three months – highlighting how many of the plans agreed upon simply aren’t feasible. Understanding affordability and the most appropriate options available is key to ensuring a successful outcome.
Approaching the repayment and lending process from a different perspective – and putting the consumer experience first, has allowed us to offer a more personalised and effective service. The rise of the cashless economy has also helped improve overall visibility, allowing us to obtain a much clearer picture of an individual’s circumstances and put more robust support measures in place.
Martin: It’s important that consumers feel in control of the process, able to view simple breakdowns of their progress, repayment plan and, if necessary, advice or guidance. Our software is designed to support ethical and bespoke financial advice – ensuring the customer’s best interests remain a priority and at every stage of the process they’re comfortable with the action being taken.
How can greater access to data, open banking and bureau information transform the overall lending and debt management process?
Colin: By utilising Open Banking data and smart software, Aryza Recover can connect customer accounts, cards, debts and assets, and then identify the most appropriate and helpful offers available. Once this data is collated, consumers can view the repayment options available to them, and depending on what the affordability check calculates, decide to continue with their existing journey or consider other options such as payment breaks or revised payment plans. This really is a revolution in the way consumers engage with lenders.
Kristina: One of our main aims at Experian is to bring data to life, creating enhanced opportunities for consumers and businesses. Alongside Aryza, we’ve developed Experian’s DebtSense, which is part of the Aryza Recover suite of products. By drawing upon Open Banking data, in combination with traditional credit bureau data, we can gain a much clearer understanding of a person’s financial circumstances, able to view their exact income and regular monthly outgoings.
If a person misses a payment, or their circumstances change, an alert is generated via the automated system to ensure the necessary action is taken immediately, using real-time data, to accurately reflect the current circumstance of the customer – whether this is the offer of a payment holiday or a reduction in monthly repayments.
Martin: Drawing on reliable and accurate data can help debt solution providers better guide their clients through the full advice process before suggesting the most suitable course of action. For some time, the industry has been crying out for more streamlined tools, able to collate all the necessary information into one secure and easy to understand platform. Open banking is a new and exciting technical solution to help both the client and the solution provider understand the affordability, stability and volatility of the proposed plan.
Open banking is powerful, but it’s just another tool in the kit that helps digitally aware clients and should be used tactically. We believe that open banking is essentially a new credit bureau data set that’s able to create a much richer picture of financial circumstances, that can be used across the entire debt and lending cycle.
Of course, data security and compliance are two important factors fintech companies need to consider, as well as also ensuring all statutory requirements are met, across jurisdictions. Once achieved, I’m confident that the overall handling of the client can be significantly improved and streamlined.
The fintech industry is developing at an exciting pace and we expect to see many new products and services launched in 2021. How do you believe the emerging fintech trends can help tackle the problems and challenges created by Covid-19?
Colin: Covid-19 has become a catalyst for innovation, agility and transformation across the fintech space, and having worked closely alongside a number of strategic partners this year, we’re confident that as the underlying need for debt solutions increases, we can continue to help tackle some of the challenges created by Covid-19.
We’ve noticed a rise in the number of lenders looking to automate the management of payment plans and collection strategies, hoping to provide consumers with a more personalised and reassuring journey. Already, we’re seeing higher engagement rates where we’d previously have seen minimal levels and hope this can continue to rise into next year.
Kristina: Experts in the development of engaging product interfaces and user-friendly journeys, fintech firms are driving some exciting changes across the financial services industry. As we look ahead to next year, we expect to see a number of exciting products launched that’ll improve engagement rates and enhance consumer confidence in an often over-complicated process.
Increasingly we’re seeing fintechs engaging with larger partners, such as Experian, to access high-quality data, automate journeys and allow the fintech to focus on user experience; with a large partner behind them, fintechs can focus on hand-holding the customer through as friendly a journey as possible.
Martin: Covid-19 is an equal opportunities pandemic, able to affect anyone and of any demographic. We’ve already seen a large increase in clients that would not normally be in a collections cycle now arriving there due to the impact of the pandemic. This has translated into a drive for people wanting to self-serve and self-manage their financial circumstance and requiring flexible tools to support them.
In the insolvency world IVA success rates are starting to improve, with fintech playing a leading role in making the process easier and more accessible. In fact, according to a 2019 EY fintech report, the global adoption of fintech services has increased from 16 per cent in 2015 to 64 per cent in 2019. This strengthens the already compelling case for new technology and the benefits it can bring to an industry heavily reliant on effective consumer engagement as we approach a year of further economic uncertainty.