The ‘high cost short-term’ lending industry has gone through a transformation since it was reviewed by the Financial Conduct Authority (FCA) last year. Speaking as a Director of MYJAR, we can see that Industry standards have been raised and with this so have consumer perceptions. There is no longer a ‘taboo’ around instalment borrowing and for those ‘banked medium prime’ customers who large lenders are cautious of, it can be an important source of financial support. This has been particularly emphasised by political and economic uncertainty caused by Brexit. Some short-term lenders are now diversifying into credit cards and other products off the back of the customer loyalty built by providing short-term support when it was most needed.
Building a long-term relationship
However, this is all heavily dependent on the quality of customer data and strength of customer relationships. Although short-term lending is designed to be short term, the issuer still needs a long-term relationship with the customer to ensure they don’t get into financial difficulty – or support them if they do. The same goes for debt collection agencies who will often find that they are dealing with the same customers on a range of different debts over time, not just having a one-off interaction with them.
As all brands know, long-term relationships are built on transparency and trust on both parts – and relationships need maintaining. An example of this is when lenders and collections professionals ‘hotkey’ a customer through to a debt advice agency for advice and support. A straightforward ‘on the spot’ referral can be difficult for a customer who doesn’t have all the necessary information in front of them and if the relationship is fully handed over to the debt advisor, the engagement with the lender or collections agent’s brand is lost. At MYJAR, we created a partnership with PayPlan whereby we can refer customers to a jointly branded online platform that allows them to get help via their chosen method. The customer feels grateful to MYJAR for the tailored support and is more likely to provide richer data that will help to resolve the issue more quickly and effectively.
Putting the power in customers’ hands by opening up channels
To get the best chance of gathering the richest data, customers need to be able to provide that data on their terms. It makes absolute sense to open up as many channels as possible for customers to choose from to create the best chance of find the method that is ‘stickier’ – and this will be different for different customers. As an online lender, we always start by determining the customers’ preferred communication method and this insight needs to be shared with debt advisers and collections professionals to give the customer the best possible chance of getting help that is tailored to their needs if and when they need it.
Open Banking is a fantastic idea on paper but customers have to consent and there is no clear motivation for them to do this. Sharing their data on their terms via their chosen method and with the understanding that it will help the lender or collections professional find a better solution for them, gives the customer the incentive to provide the best possible picture of their financial situation. Making it even easier for them to do this through online channels that feature how to videos and allow them to work at their own pace to gather the information needed is a win-win.
Why rich data makes business sense
Collecting and sharing rich customer data is a no brainer from a commercial point of view. But customers will only share it with brands they trust, which is why empowering them to take charge of how they share their data is so important.
Online platforms allow for ‘trigger figures’ on things such as abnormal household spending that enables the lender/collector to ask the right questions if and when they do need to speak to the customer. If a customer does end up engaging with a debt collection agency, the lender can at least share the full picture of what the situation was at the point at which they borrowed – making it much easier to recover defaults for all involved.
Credit Reference Agencies play an important role in this – some provide much richer data than others. It is quality, not quantity of data that counts.
When we start talking about ‘fintech’ and ‘rich data’, it can seem that it is something only really innovative larger firms can achieve as ‘early adopters’. But it comes down to fairly simple processes and systems and, ultimately, excellent customer service.
Stuart Sykes, Director MYJAR and Board Director at Credit Services Association (CSA)