Spotting early warning signs of at-risk consumers with Open Banking

For UK consumers, the current economic climate continues to create challenges. As the cost of living rises continues to intensify, many are concerned that they will no longer be able to keep up with their regular monthly outgoings. In fact, the Office for Budget Responsibility, predicted that UK household real income in 2022 would contract at the sharpest rate since records began in the 1950s.

The challenge 

As anyone working in the financial services industry will know, changes in economic output, inflation or interest and foreign exchange rates will have a knock on impact on consumers.

Over recent months, UK consumer price inflation has risen sharply and significantly impacted the price of food, durables, consumer goods, fuel and energy. Fuel costs are recognised as one of the biggest contributor to this rising inflation, with average petrol prices increasing by 12.6p per litre between February and March, the largest monthly increase since records began in 1990.

The price of monthly utility bills has also soared, with around 18 million households seeing their annual bills increase in April from £1,277 to £1,971 - an average increase of £693. According to the results of the Opinions and Lifestyle Survey (OPN), undertaken in March, 81 per cent reported an increase in their cost of living.

A growing number of businesses are also being left with no other choice than to raise their prices in order to protect margins and remain profitable. This trend is not confined to the UK, other countries are also experiencing similar pressure - with the war in Ukraine continuing to create uncertainty.

For banks and lenders these unpredictable times are a cause for concern, significantly impacting thousands of consumers’ ability to pay back credit. Now, both highstreet and neo-banks are looking for ways to not only mitigate risk, but also support their valued customers.

Knowing your customers

Before any action can be taken to support customers who might be struggling, they need to be identified. According to one study, almost a third of businesses admit that they are ineffective at identifying at-risk consumers, while an inability to spot ‘early warning signs’ was a critical challenge for 27 per cent of respondents.

Through the deployment of specialist technology, banks and lenders can build a more complete picture of a person’s financial position. By running far more sophisticated affordability checks that factor in a range of credit, Open Banking and transactional data, lenders will benefit from greater insight around a person’s true financial position. Should their financial commitments, monthly income or outgoings change, action can be taken immediately.

Taking the appropriate action 

Should any at-risk factors be flagged, banks and lenders then need to be able to effectively monitor these cases on an ongoing basis, taking action whenever required.

This involves regularly engaging with the individual to understand if their circumstances have changed and then taking the most appropriate action. This has been a long-standing challenge for those reliant on legacy technology or manual processes, especially as case volumes increase.

Specialist systems, can digitally guide consumers through their money management journey, explaining their options in an easy to understand and step by step format. By utilising Open Banking data and smart software, these systems connect customer accounts, cards, debts, and assets, identifying the most appropriate and helpful offers available.

With this data collated in one place, consumers can easily view the repayment options available to them. Depending on what the affordability check calculates, they can then decide to continue with their existing journey or consider another option such as a payment break or revised payment plan.

With the cost of living continuing to spiral, it’s crucial that banks and lenders are taking action to ensure positive financial outcomes for consumers, and prevent a tidal wave of debt. For the consumer, knowing that they won’t have to have a difficult conversation over the phone or in-branch will also remove a big hurdle that might previously have delayed them from seeking help to manage their monthly outgoings.