EQ How To Fix The Arrears Challenge

How To Fix The Arrears Challenge

01 November 2021

EQ with Grant Thornton

Financial service companies are experiencing rapidly increasing arrears on commercial and consumer loans. We look at how firms can incorporate a market led solution to build sustainable framework and meet best practice.

Across the country, we are seeing the fallback caused by the pandemic. One area most affected are the businesses and individuals seeking government furlough to stay afloat, and as many as 1,000 financial service customers are falling into a state of ‘financial distress’ daily. Lenders are facing a growing number of customers unable to make repayments as a result, and understandably in the uncertainty of the last 18 months, few financial service providers have had the process and infrastructure in place to cope with this demand.

A joint initiative is being introduced by EQ and Grant Thornton to build a market led solution focused on technology, people, data strategy and meeting best practice to adapt to the current market landscape and help lenders manage the current demand.

4.5 million payments deferrals in 2020

Challenges for lenders

Managing the significant growth in consumer and commercial loan arrears has established a number of obstacles for lenders. A key challenge facing the arrears industry is the increasing NPLs, which are leading to a large amount of uncertainty over the timescale and degree of impacts. The volume of non-performing loans that an organization face is often not clear, and firms do not have the infrastructure to prepare for long term horizons. Similarly, lenders are being pressured due to the increasing regulatory requirements, meaning firms have to tackle their arrears volume under tight compliance regulation, mainly the FCA Principle 6 requirement of TCF.

Lenders also lack the necessary tools to handle the arrears demand. An increased volume of claims has created friction with the arrears, forbearance and insolvency operations currently in place at banks and other financial services, which are rarely designed for scale and not set up for this extreme situation. Additionally, lenders do not hold the necessary data to establish reliable scenario planning and decision making in most cases, creating a vacuum of significant metrics for organisations to build their infrastructure.

Many lenders are also understaffed, and demands cannot be met with smaller staff numbers. In many organisatons, the necessary human resources and key skills needed to meet customer demand is not in place, and certainly not as the necessary level to meet the current demand. Necessary training and experience is unlikely to be established, and expertise in the market is falling short based on this criterion. Due to this, management controls and reporting measures are unlikely to be adequate, and the uplift in arrears volumes is not being met.

Lender solutions

EQ and Grant Thornton have analysed the current problems in the market and have established end-to-end capability to support debt resolution operations and implement them accordingly for their clients. A key resolution we will provide is a scalability support model, intended to be deployed flexibly and quickly to ease the pressure of organisations struggling to meet demands. It is also important that this model helps build on our long-term market commitment to support client requirements, as short-term solutions are rarely sustainable in the current market.

Lenders require a knowledgeable framework to efficiently meet demands. We believe it is necessary to provide better management in this specialist area and create core management tools to help overcome further increases in customer arrears volumes. This will also help organisations meet their compliance regulations and best practice to ensure the best outcome for both the firm and the customer. By implementing these changes, lenders can help keep their risks in check and help keep the future remediation under control.

EQ and Grant Thornton share a core value of leadership through collaboration. Both organisations are geared towards creating a new normal for clients that puts them in a stronger position for the future.  The EQ and Grant Thornton market leading arrears management solution operates from a place of trust that is sensitive to the needs of vulnerable customers.

— Aaron Hughes, CEO, EQ Digital

What can we do now?

We aim to help lenders ensure stability by utilising a vast amount of experience, technology and resources in customer arrears management to ensure compliance requirements are met. Collectively, organisations can be ensured that expertise will be provided in best practice ‘financial distress’ business models and an assurance that operation performance, regulatory requirement and horizon scanning are effectively implemented. Equiniti brings in key components to provide fast support for key mobilisation activities, data and fraud, management analytics and competent resources supplied at scale to match a lender’s needs.

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About EQ

EQ is an international specialist in payments and technology-led services, while Grant Thornton is one of the world’s largest networks of advisers, helping organisations to navigate today’s volatile markets.

Together, our complementary skills and knowledge can make a huge difference in helping you to manage the arrears of customers in financial distress. We will enable you to do this through best-practice techniques that are flexible, reliable, compliant and fair, protecting the vulnerable and delivering the best outcomes for both you and your customers

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