The difficult investment case: effectively managing consumer vulnerability and affordability

Author: Matt Wallis, Head of Solution Design, TDX Group (an Equifax Company)

The focus on fairer treatment and achieving the right outcome for indebted consumers has undoubtedly made big strides over the last 5 years, notably since the inception of the FCA. But making investments that can drive further improvement, and ahead of being pushed to by the regulator, can be challenging for businesses to buy into not least because of the constant pressure on costs. These pressures will be amplified even further as the UK officially enters recession, however this in itself provides even more importance to optimising how indebted consumers needing support are identified and treated.

Whilst there has been a positive evolution in the management of consumers in difficult circumstances – whether financially driven or otherwise – there continues to be a varying degree of creditor sophistication, with customer journey improvements often hampered by the difficulty and cost of changing systems, and prioritising changes and associated costs against demands across the whole business.

Whilst there are undoubtedly significant benefits that external partners can bring to creditors in the identification and management of customers struggling with meeting their credit commitments, they ultimately come with an increase to Opex. This coupled with a legacy view that management of vulnerability is simply a cost line that, whilst jointly fulfilling a regulatory requirement and better customer outcome, provides no financial benefit. This means business leaders within Credit & Collections can find it difficult to get investment approval for process improvement especially when trying to go above and beyond the regulatory minimums.

What we have found at TDX Group, working with our Clients and Partners, is the often significant positive financial impact that deploying the right tools and services to identify and manage customers in difficult situations will drive for creditors - across cost, revenue and/or bad debt. Just two examples of this - especially prevalent right now as we see payment holidays coming to an end and continued increases in call centre demand - include:

The use of Open Banking to populate income and expenditure. This isn’t just a creditor benefit – customers experience a much simpler and smoother customer journey - reducing call handling times by up to 75% - we have seen that in the collections space consumer engagement is very high with over 85% opt-in rates. With expected huge increases in call centre demand, cutting handle times also means you can talk to more of your customers and ensure their credit agreements are appropriate, avoiding potential detriment, bad debt and the cost of them coming back into collections. We have worked with creditors to deploy turn-key solutions to quickly quantify the financial benefits and prove the business case before a wider roll out.

The use of external data to make informed treatment path decisions about affordability. CRA data is incredibly powerful to understand a customer’s holistic financial circumstances – from high financial capability through to signs of financial distress, or worse. Augmented with the now available COVID-19 characteristics, this simple to digest insight enables creditors to identify and manage their customers far more effectively, prioritising activity where it is needed most, and ensuring customer outcomes are fair. But sticking with our theme, there are key financial benefits that shouldn’t be overlooked here too – engaging customers showing early signs of difficulty can reduce the bad debt risk of them falling into arrears, and reduce the costs associated with later stage collections and recoveries.

Classifying a customer as vulnerable – by any definition – shouldn’t instantly be viewed as a financially bad thing, but as an opportunity. We know that customers showing signs of financial difficulty are less likely to engage - by up to 60% - but anything from adjusting communication tone and content, through to utilising specialist agent care teams and skills can drive uplift in right party engagement in an appropriate way. An Agency on the specialist TDX Group V+ panel has demonstrated this; “The biggest success story is that recoveries and the amount of money collected from the vulnerable people has increased significantly. Because they weren't ready to pay at day 5 or day 10 in a collections world, but they are ready to pay after 4 months or 5 months being treated like a proper human.” And TDX Group research demonstrates that engaging and treating customers fairly through their vulnerability – which can often be temporary – increases long term customer loyalty, and as a result, profitability.

There was a lot of initial concern as to the impact of customer centric affordability and vulnerability policies might have on operational management and ultimately costs – however there has been a genuine cultural shift across all sectors towards the desire to ensure all customers are treated fairly - especially where there is risk of detriment. Those creditors whose eyes are open to the financial benefits on offer by proactively identifying, and engaging, customers struggling with their credit terms with the best solutions the market has to offer will be able to continue their journey far more effectively – and keep ahead of regulation rather than playing catch-up.

Can your business effectively identify and manage customers that may be vulnerable or have affordability issues? TDX Group and Equifax have a wealth of experience in supporting creditors to optimise their customer journeys throughout the credit and debt journey - from an initial benchmarking of your current approach or a Strategy and Segmentation redesign via our Advisory function, through to optimisation of Collections, Recoveries and Vulnerability outsourcing with our managed service offerings.

For more information about our vulnerability services contact us here.

Matt Wallis, TDX Group
Matt Wallis,  Head of Solution Design.

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