By Andrea Varga, Head of Innovation at Aryza.
Despite the UK narrowly avoiding a recession in 2022, the nation continues to face economic challenges. From rising utility bills to increasing food costs, it’s not surprising that many consumers now consider themselves financially vulnerable and are struggling to keep on top of their monthly payments.
A staggering 15.9 million adults actually considered themselves to be more financially vulnerable as a result of the COVID-19 pandemic, and with the cost of living crisis continuing to bite, there’s a real need for businesses to take action.
The need for action
In December, the Vulnerability Registration Service (VRS) found that 16% of the general population now consider themselves in ‘financial distress’ and are finding it difficult to keep on top of payments. Among the most vulnerable in society, this number stood much higher at 27%.
It’s important to remember that ill health or a sudden negative life event, such as a bereavement, relationship breakdown or job loss, are other factors that can leave a person more vulnerable or susceptible to financial harm – especially if they have low financial resilience.
This situation is highlighting the need for good quality support that is tailored to an individual’s personal circumstances, to prevent a tidal wave of debt.
How to identify vulnerable customers
Financial vulnerability – and its drivers – can be a difficult topic to talk about. However, a reluctance to talk about these issues often lead to problems spiralling and financially vulnerable individuals not receiving the help they need in a timely fashion.
The Financial Conduct Authority (FCA) identifies four key drivers of vulnerability as part of its ‘Vulnerable Customer’ definition, consisting of issues surrounding health, life events, resilience and capability. Problems mentioned range from mental or physical health conditions that impact a person’s ability to carry out day-to-day tasks, to a low confidence in managing money or poor literacy skills.
The VRS estimates that nearly half of the population (45%) are affected by these circumstances – 24.5 million adults across the UK – a statistic which highlights the scale of the issue.
The Vulnerability Registration Service
The Vulnerability Registration Service (https://www.vulnerabilityregistrationservice.co.uk/) was established to give these vulnerable people a single place to register their status, helping them to avoid repeating the same challenging conversations with creditors and lenders. At a time when just over one in four vulnerable customers (27%) are struggling to keep up on payments, amid soaring energy prices, the VRS report also found food and fuel prices have forced 1.2 million UK adults (2%) to turn to unscrupulous loan sharks in the past 12 months.
Now more than ever, the industry needs to be stepping in to prevent these people from being exploited.
The role of technology
Technology has revolutionised how the industry identifies and monitors vulnerable customers and their level of affordability, with lenders now able to access a complete and accurate view of a person’s finances through open banking and other data sources.
Providing ongoing visibility of affordability and vulnerability, rather than a perspective at one point in time, technology can ensure that businesses working across the financial services, debt recovery and utilities sectors are automatically alerted when a vulnerability occurs. Similarly, if a person’s situation suddenly changes, they can take the most appropriate course of action.
Solutions such as Aryza Recover provide a single user-friendly dashboard, pulling together key metrics such as monthly expenditure and income, as well as identifying additional benefits that a person might be entitled to. This information can also be accessed by lenders and credit providers, preventing consumers having to trawl through endless documents when applying for finance.
When both parties are fully aware of the circumstances, the most suitable course of action can be taken, whether that’s identifying a more affordable repayment plan or offering a payment break – acting in a timely manner is key.
With the new Consumer Duty regulation setting a clearer and higher standard, there’s no denying that the industry needs to act. With specialist technology paving the way for more personalised and effective decision-making and communication, lenders can ensure that they are always acting in the best interest of their customers, especially those considered vulnerable.
