For organisations on the front line, this brings huge operational challenges – from adapting collection strategies to reflect changing payment behaviours to putting in place additional support for vulnerable customers. But it will also be done very publicly, requiring an empathetic approach in a volatile public arena where social media amplifies missteps.
Financial difficulty and vulnerability are complex and nuanced issues that require diligence to manage effectively. Increasingly, this is taking place in a digital arena as consumers opt to engage with their creditors through digital channels, including when it comes to collections. And regulators are watching closely; next year, the Financial Conduct Authority (FCA) will introduce enhanced consumer duty requirements which will set higher standards of consumer protection across financial services and require firms to focus on the diverse needs of their customers, especially those in vulnerable circumstances, at every stage and interaction.
Ready to react
These challenges are significant, but they are not unique. During the pandemic, our Execution Managed Services (EMS) teams worked closely with many companies in the travel and leisure sectors as they dealt with sudden and huge surges in requests for refunds. EMS services proved a flexible and invaluable option during the pandemic, allowing businesses to adapt operations quickly and scale resources up and down at speed. A crisis can come in many forms but in any situation, it is critical that businesses make the right moves in the first days and weeks.
EMS is designed to support clients in improving operational delivery, using our technical expertise, data and technology capabilities to simplify complex challenges and improve existing operations.
Ramping up debt management functions to cope with exploding demand and with the nuances of the cost-of-living crisis and changing regulatory expectations is a good example of where EMS creates real value, not just in mobilising specialist collection teams at short notice to support credit and collections operations, but in providing data and intelligence-led advice to identify challenges early and mitigate risks.
In this case, there are clear steps that business can take to prepare and make sure that their debt management operations are robust, fair, and effective.
Prevention is the priority
The first vital step is to address issues before they happen – identify at an early stage the customers who are displaying behaviour that suggests they are likely to fall into arrears.
As an example, Open Banking data, combined with the latest analytical tools, has made this process much more effective. Our own analytical approach is designed to highlight customers who are likely to enter the collections process in the near future, giving creditors the valuable time and opportunity to address financial vulnerability at an early stage.
Meeting operational challenges
While identifying customers most at risk is a vital first step, there are further challenges to overcome. Even individuals who have fallen into arrears are often reluctant to engage; FCA research shows that only a third of borrowers in difficulty use debt advice, and 20% did not respond when contacted by their lender. Even so, 79% of people in financial difficulty who have accessed debt advice would recommend it. Another hurdle is the capacity of creditors – who may already be overwhelmed with customers who are already in debt – to engage with those who are at risk but not yet in arrears.
Helping those in difficulty
So once at-risk customers have been identified and contacted, what next? There are a range of options, supported by sophisticated digital tools, that can help prevent customers from sliding into arrears and build a trusting relationship with the institution. Reducing or temporarily halting repayments proved helpful to many during the pandemic, for example, but the challenge for creditors is assessing which customers are most in need of forbearance and whether forbearance would not make things more difficult in the long run.
Powerful data analytics and digital tools help institutions inform and support their vulnerable customers once they are identified:
- Income maximisation
- Expenditure insight
- Specialist Advice (and potential debt consolidation)
Income maximisation
Is the customer claiming all benefits they are entitled to? Is there any way in which they could increase their income? Digital tools are now available that make this a much simpler process for consumers to negotiate, including a pre-screening option which allows the user to complete a high level assessment of their circumstances to determine whether it is likely that additional benefits will be available to them.
EMS provides not only capacity, but the technological and digital support, analytical capability, and experience to bring real insight and value into debt management operations at a very challenging time. Intelligent use of data and analytics will allow institutions to maximise recoveries and make sure that customers are treated fairly.
If you would like to discuss your pre-arrears strategy - from identification through to effective and targeted use of the tools available, please contact Stephen Tebbett or Stuart Bungay.
[1] One in two adults in the UK is financially under-served and/or financially fragile, and three-quarters of UK adults are worried about the rising cost of living. Overlooked and financially under-served - PwC UK
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Partner, Working Capital Management and Execution Managed Services, PwC United Kingdom
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