New Affordability – the key to tackling persistent debt? (Part 2)

Consumer lending and the surrounding regulation has changed dramatically in the last two decades.

New Affordability – the key to tackling persistent debt? (Part 2)

Despite this positive impact, and the growing importance of affordability assessments within organisations, some are concerned about the potential impact more robust processes would have on the customer experience. Close to one in five (17%) of respondents disclosed that they have had a customer complain about affordability checks.

The technology available today means that lenders should be able to assess all the necessary affordability indicators without hindering the customer journey. This is particularly important in a pre-delinquency environment, where individuals are not yet in persistent debt, and a wrong approach to their circumstances could damage the customer relationship and result in a loss of business. 

Organisations can use technology and data to verify income and expenditure, often without having to ask consumers to provide supporting paperwork or documents. And when specific evidence of income and expenditure is needed, with the consumer’s permission, a digitalised view of transactional data from a consumer’s bank account can be accessed. Using data and technology in this way enables lenders to identify customers heading for financial difficulty early on, without any manual intervention or interruption to the customer journey.

The need for robust affordability assessments will only increase further, as both regulators and lenders continue to focus on the wellbeing of their customers. In order to truly thrive, the future of affordability needs to be built on firm foundations like accurate data and technology that can evolve. This will help lenders meet regulatory requirements, such as the FCA’s recent credit card proposal, limit the impact on your customers and reduce over indebtedness.

If organisations want to stay at the forefront of regulatory and other changes and truly understand an individual’s ability to afford credit, far from being a static, tick-box exercise, affordability assessments need to be an ever-evolving core consideration for the business.