An Influx Of Vulnerable Customers
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An Influx Of Vulnerable Customers

03 September 2020

How lenders can prepare for an increase in business and consumer debt management services

As the government starts scaling back its COVID-19 financial support initiatives, and with the furlough scheme due to finish on 31st October 2020, lenders are braced for a further influx of financially vulnerable customers.

At the start of the outbreak, financial services firms began offering a series of government-backed support measures, including loans for businesses and repayment holidays for consumers, which have been eagerly taken up by millions over the past few months.

However it is predicted that this autumn will see another significant rise in those struggling financially, with unemployment expected to increase further as furloughing comes to an end. This time those affected will have limited access to financial assistance.

With demand rising for debt management advice, increased collections activity, and the need for more proactive customer communication programmes, we look at what lenders need to consider to prepare their business to deal with potentially thousands more financially vulnerable customers.

Take up of the financial support schemes

As of mid-August, a total of 9.6m jobs had been furloughed across 1.2 million companies. Many of these individuals and businesses will also have taken up the support offered by financial services firms for business loans and payment holidays as below.

  • Over 1.2 million small and micro businesses have taken up the Bounce Back Loan Scheme (BBLS).
  • £13.4 billion has been lent under the Coronavirus Business Interruption Loan Scheme (CBILS)1.
  • Over 1 million payment deferrals agreed on credit cards2.
  • Nearly 2 million homeowners have taken out mortgage payment holidays3.

These schemes are due to end at the same time as furlough and the implications are obvious with unemployment and further financial hardship expected to impact both consumers and businesses.

Longer Term Economic Impact

The ability of the economy to bounce back quickly remains uncertain and September will be a key month here as schools go back, freeing up parents to return to more normal working patterns.

However with social distancing still a requirement, few offices are able to open at pre-COVID capacity levels. Combined with a new understanding of how effectively office based staff can work from home, and many employers have little incentive or appetite to force workers to return to the office.

As we have seen, this has significant impact on the many businesses who rely on office workers, particularly for our high streets in towns and cities. The hospitality and retail sectors are two of those most seriously affected by the lockdown and a slow recovery in the footfall will lead to further closures and redundancies.

Supporting Vulnerable Customers

Both business banking and consumer lending firms are acutely aware of this current and growing problem with several milestones due in the coming months that will test their capacity and capabilities.

Business Banking

Although businesses are encouraged to start repaying loans as soon as possible, the first compulsory payments are not due until Q1 2021. This gives lenders several months to prepare their teams to undertake collections activities on a scale not experienced before. This volume increase will test the processes, people and systems already in place within their organisation. Smart businesses will want to be sure that they will pass this test or they may find themselves suffering alongside their customers.

Consumer Lending

For mortgages and consumer credit payment holidays, the FCA has more to say on long term active engagement and support for vulnerable individuals. Custom, tailored support is expected to be provided to those remaining in, or entering, financial difficulty. This in itself is not new, but the volume of customers expected to fall into difficulty presents a significant challenge to businesses. In order to maintain the quality and accuracy of advice and support required by the FCA, firms should be reviewing their current processes, communication channels and resources to ensure they can meet the expected demand.

Getting Prepared

As lenders review the challenges they face, they know that being proactive is the only way to weather the storms ahead. They know they are going to have to provide debt management advice and assistance on a scale not previously experienced, and combine that with a sympathetic but effective collections function to enable them to continue as a healthy, responsible business themselves.

So what steps can they take to ensure they have the capacity, capabilities, and expertise in place to meet these dual requirements?

At EQ, we have distilled down such assessment and review programmes into four key areas that ask the following questions:

Processes – Can your current processes scale up effectively and efficiently? Are there legacy steps that no longer suit your business? Do you have to include new considerations for COVID-specific situations? How do you incorporate the new regulatory guidance?

People – Do you have the right skillset and capacity in your workforce? Are your staff flexible? Can you upskill, train or increase capacity quickly?

Data – How up-to-date is your customer data? Do you have a single customer view across your operations? How effective are your data validation and cleansing and tracing operations? Can they quickly increase capacity?

Technology – Can your technology platforms carry the load? Do they match your processes and make them more effective? Can you use them to evidence regulatory compliance? Can you get the necessary Management Information (MI) and reporting data from them? Do they support your customer facing staff to do their jobs effectively?

If you are struggling to answer any of these questions, then we can help. We can provide full end-to-end support in dealing with customers in financial difficulties, from the pre-emptive assessment of customers’ risk through to debt administration, loan rescheduling and collections. We also offer specialist resources and/or technology to support in-house operations or provide a regulated fully outsourced solution.

Get in touch to find out more.