Credit, Collections & Insolvency News
Businesses have faced a series of financial challenges and generational disruption crammed into the space of a few years: the pandemic; the impact of Brexit on supply chains and market access; and the toughest squeeze on living standards and consumer spending power since the 1970s. Corporate insolvencies are already at their highest levels since the Global Financial Crisis. Over the next 12-18 months, businesses will have to contend with sluggish economic growth, continued pressure on consumer spending, and a need to refinance or pay back pandemic-era loans. There may be increased demand for new financing too, while significant numbers of SMEs may require support from lenders as they navigate pressure on their finances. In particular, we know that many SMEs in the ‘growth’ phase really do want, and may benefit from, a tailored relationship with their lenders. SMEs have very diverse needs and lenders need to make sure they have the right services available to cater for these.
The financial services sector may not see the full impact of the cost-of-living squeeze until later this year or beyond, and firms need to be taking steps to help customers before they get into distress
The full impact of the cost-of-living crisis is yet to be seen, and we’re hearing different things from financial services providers and consumer groups. One the one hand, financial services providers have noted they have yet to see significant levels of distress among their customers; but on the other, consumer groups are working with individuals who are getting into debt for the first time and are starting to struggle. These customers may be keeping up with monthly repayments at the moment, but they might be making significant cutbacks to spending elsewhere so that they can do so, or they might have exhausted all their savings. Worse, they might be taking on credit, or using alternative lending schemes like Buy-Now-Pay-Later products, to pay for basics. This isn’t sustainable. While banks and lenders might have assessed what they have in place to help customers in distress, they may need to do more to identify and help prevent customers from reaching that point in the first place.
If existing prevention measures on Authorised Push Payment fraud fall away next year, there is a risk that scams will accelerate
From October 2024, it’s expected that there will be a new statutory requirement for Payments Services Provider to reimburse victims of Authorised Push Payment (APP) Fraud. While mandatory reimbursement for APP fraud is welcome, we cannot lose focus on the importance of fraud prevention – the only way to truly prevent customer harm from occurring. Unlike the incoming framework, the existing Contingent Reimbursement Model (CRM) Code requires signatory firms to take steps to prevent APP fraud from happening in the first place. As such, there is a significant risk that progress made in these areas might fall away after October 2024. Alongside the new reimbursement rules, there is a clear need for a new APP Fraud Prevention Standard, overseen and enforced by an independent body, to ensure the industry has a consistent approach to stopping scams. Reimbursement alone cannot reverse the emotional distress that APP fraud causes, nor can it prevent the proceeds of fraud from being channelled towards criminal activity. Without a consistent approach to prevention, the risk is that APP fraud – and consumer harm – will accelerate again.
New types of fraud will develop as consumers and SMEs come under financial pressure
The sad fact is that fraudsters rely on people in vulnerable situations, and they react quickly to exploit new developments in the market. For example, over the next few years, many businesses will be repaying the emergency government-backed loans they took out to help them through the pandemic – fraudsters may look to exploit this, offering to help businesses with quick fixes or too-good-to-be-true debt restructuring. Consumer and business vigilance is key, but the financial services sector and other sectors involved in the customer journey will also need to work together to help customers avoid becoming victims of fraud.
The financial squeeze will also increase the importance of the financial services sector understanding how vulnerability affects customers in 2024
The significant cost-of-living challenges affecting consumers will increase vulnerability in banks and lenders’ customer bases. Some people will be getting into financial difficulty who will have never even been in debt before, and won’t necessarily know what options are open to them. At the same time, even some specialist lenders have encountered their own financial difficulties, reducing options for people in need of credit. The combination of low financial resilience and the increasing difficulty of accessing credit may push some consumers towards riskier or more high-cost – or even illegal – sources of credit. Banks and lenders need to have a good understanding of their vulnerable customers’ financial situations – including where else they may be borrowing money – and their support needs.
