Industry collaboration is vital to providing more effective support for vulnerable borrowers

People across the UK are struggling to stay afloat financially as the cost of living crisis continues to bite. Our own research reveals that financially vulnerable people are twice as likely to end up in debt each time they take out a new credit product. More than four in ten (44%) people in this group say they’ve ended up in debt after turning to a credit product in the last 12 months, compared to an average of 22% across the UK as a whole.

These people need help, and fast. So what should the industry be doing?

We’re stronger together

At the end of July last year, the FCA’s new Consumer Duty rules came into force. These new rules have been designed and implemented to drive better outcomes for the UK’s consumers, and the FCA is now actively monitoring how financial firms are responding – and promising action against those who aren’t following them.

Regulation like the Consumer Duty can help to kickstart lenders and other financial institutions to shift to a more consumer-focused approach, but it can only go so far on its own.

The cost of living crisis has served to highlight what many of us have known for years: the UK financial system is flatlining. It’s in urgent need of systemic change if the financial health of consumers is to be at its heart.  

We must now redesign our financial system, and promote a more outcomes-based approach. Following the Consumer Duty, it’s essential that the industry comes together to explore the technology and expertise needed to adapt successfully to the new regulations.

With this in mind, we recently held a roundtable with some of the UK’s leading high-street and challenger banks to discuss borrower vulnerability and how we can enhance support for vulnerable customers at an industry-wide level.

One of the main takeaways from our discussion was the need – and appetite – for collaboration across the financial services industry.

Although each lender has its own process in place to identify the most vulnerable borrowers and offer solutions, these are often reactive rather than proactive, and can lack nuances of the situation. For example, rules-based models could flag customers as vulnerable once they hit a certain age, or have a certain amount in their accounts, but this isn’t always as effective as other approaches, such as self-reporting, and potentially vulnerable customers can often be overlooked.

In order to properly identify and support the widest group of vulnerable customers possible, urgent collaboration is required. This requires enhanced data sharing and new tools, which will enable lenders to target vulnerable customers more accurately before they find themselves in dire financial trouble.

Sending a signal to the market 

Products like Health Signals, developed last year, automates vulnerability monitoring by thoroughly analysing customer transaction data, via Open Banking or existing transaction data, and providing financial firms with the richer insights needed to proactively monitor, report, and predict financial vulnerability in these tough times.

Technologies like this can provide lenders with much-needed compliance support, especially after our research showed that 55% of lenders felt unprepared for the Consumer Duty rules, with 61% saying they would need to bring in a third party to provide support and guidance.

It's an important step forward, enabling lenders and other financial firms to better understand the needs of their customers and boost consumer protection – but we would now like to see this ambition matched by the creation of an industry-wide standard when it comes to identifying vulnerable borrowers.

This would help to create a fairer financial system for millions across the UK, and it’s something I would urge the FCA and other regulatory bodies to carefully consider this year.