Credit, Collections & Insolvency News
Right now, financial wellbeing is a widespread preoccupation for the country; from bleak reports of redundancy and furlough, to questions of how financial institutions will adapt to a post-pandemic world and support these customers.
In the UK alone, 3.1 million households are in serious financial difficulty as a result of the lockdown and, with so many people struggling financially, it is crucial the financial sector finds ways to protect these customers.
Only recently was it announced that the Financial Conduct Authority (FCA) is fining a major high street bank over how it dealt with mortgage customers in difficulty. The regulator found call handlers did not always get the information necessary to accurately assess mortgage customers’ financial circumstances when arranging repayments, on top of which they were also able to accept interest on top of repayments without adjusting the percentage to take customers’ financial circumstances into account. The issues uncovered took place pre-pandemic but it’s even more important now that the lending industry supports customers struggling to repay.
This begs the question of how we can cultivate a fair borrowing system where all customers are treated fairly, and where their personal circumstances and needs are thoughtfully considered by lenders.
In this respect, Open Banking can provide real value and improved efficiency throughout the customer lifecycle. Aside from helping lenders assess whether someone can afford to take out new credit lines, Open Banking can also aid in the creation of sustainable payment plans for customers experiencing financial difficulties. This way, lenders are doing everything in their power to protect vulnerable customers from additional financial challenges.
When it comes to assessing an applicant’s ability to repay a new loan, traditional credit checks suffer from outdated and often irrelevant financial evidence, such as address history. This information can be 30-60 days out of date and does not reflect recent changes in a customer’s finances, so isn’t indicative of someone’s current financial health.
In light of the pandemic, it is very likely that recent income changes caused by lockdown restrictions can affect someone’s ability to repay a loan. Research from Credit Kudos shows that 28% of people agree that COVID-19 has had a significant impact on their income. Unsurprisingly, this figure increases to 41% for those currently using high-cost credit or overdrafts. While this form of lending is more expensive in the long run, borrowers are faced with limited choices in the current climate. Several lenders have temporarily paused lending, while others are putting their services on hold, as existing methods of identifying creditworthy borrowers are unreliable. Open Banking is helping lenders overcome these issues by enabling regulated companies to connect directly to banks and financial institutions to securely access up-to-date financial transaction data which makes it easier to determine affordability. Just as importantly, Open Banking can also help the 8 million U.K customers already struggling with some form of problem debt. Customer management solutions using Open Banking have a number of functionalities that make it easier for financial institutions to offer personalised support.
From automating income and expenditure calls to allowing lenders to adjust credit limits based on real-time data, the possibilities offered by Open Banking in this space are vast. The technology can also provide up-to-date insights on an applicant’s recent income and borrowing behaviour, especially useful in current economic circumstances and for when customers are in arrears.
In adopting these solutions, lenders benefit from greater digital agility and can better understand the needs and circumstances of their customer with real-time data. In turn, they can serve their customers fairly, continue to lend where it is affordable for borrowers, and support those in difficulty repay in a manageable way.
Open Banking presents a significant opportunity to change the face of finance, incorporating the lessons learnt from previous solution’s shortcomings and, most recently, over the course of the pandemic. Through its predictive elements and reliable, real-time data, this technology can foresee financial turmoil, and offer solutions quickly and efficiently – helping financial institutions offer an improved experience to their customers and make inclusion a number one priority.
