Financial Hardship and Lender Policies in the Digital Age

Consider this. The modern consumer model in recent times has been moulded and championed by suppliers of goods and services who can work with customers on their terms. Ethics, environmental sustainability, marketing and customer interaction all need a targeted approach to secure business. Telecommunications companies, utility providers, insurers and lenders of all descriptions have leaned into the concept of improving the customer journey by offering simple applications, minimal clicks and instant answers in order to entice new customers and grow their business. Employing digital tools to deliver these capabilities has become so popular across all sectors, that it is often not considered a differentiator, but more a basic requirement to invite new customers and generate larger returns within account management portion of the customer lifecycle.

In the current environment, the world’s economies are operating in moderate to high inflationary atmospheres, which as part of a general rule of thumb means higher interest rates, less discretionary household income, and as part of a self-correction measure (hopefully short) recessions followed by increased rates of unemployment. The social impacts of such forces are many, but one of the chief concerns is consumer financial hardship. Larger lending organisations such as banks are encouraging customers to reach out early to speak with internal lending specialists to avoid or mitigate hardship. This entails a manual process with a considerable lead time to ensure an appropriate assessment is made, followed by a plan of execution. In New Zealand, a recent Newshub article, ANZ Bank had rightly highlighted the importance of communicating changes in circumstances  early, and that they were ready to help. This work is designed to gain an understanding of the customer’s ability to reach financial obligations, and where required, to set a framework for the bank to provide short-term assistance where those obligations are out of reach.

ASB publishes the basic requirements for customers to apply for hardship; what documentation is needed, who to contact and outlines the expected timeframes to establish an outcome within 20 working days being the likely resolution window once the appropriate information has been supplied to the bank.

However, in many cases customers may not have 4 weeks before other financial commitments, even simple ones such as basic cost of living will begin to take precedence, which may lead them into further financial hardship. A case study had recently been published on Newsroom about Good Sheppard’s work in assisting a healthcare worker who had fallen victim to economic hardship as the result of an abusive relationship. The unnamed woman in the article noted that a change in her partner’s behaviour had left her solely responsible for over $15,000 in debt owing to multiple providers including debt collection agencies, resulting from borrowing to cover other financial commitments. After having spoken to over 40 individuals across several organisations unfamiliar with her case, the woman was facing potential financial ruin. On the verge of complete collapse with creditors threatening recovery actions, potentially losing KiwiSaver contributions to reduce debt, and having her credit history tarnished, Good Sheppard had advocated on her behalf. Working with her bank (one of her significant debt holders), Good Sheppard managed to assist in reducing the woman’s financial hardship by gaining an agreement with the bank to have the unfair debt undertaken in her name to be written off. When the bank agreed to write off the debts She said, “I just cried” and that she “could finally begin to see the end.”

While this might be considered an extreme example of hardship, brought about by an unforeseeable set of circumstances the fact remains that there was no clear path to lodging a realistic case for hardship, leaving a struggling individual unsure what to do an who to turn to for guidance.

In the digital age where complex decisions can be made in virtual real time about lending of every description ranging from a small personal loan to large mortgages, might this be a good time for financiers to use the same digital platforms to protect consumers rather than focusing primarily on gaining their custom? A great example of new fintech, Money Sweetspot, and their unique approach to tackling financial hardship could help inspire the general financial services industry to recognize the importance of this facet of their business.

In utilizing modern digital tools, it is possible to design and implement processes to take the heavy lifting out of any kind of decision by employing automation. Provided the criteria is well defined and established, the argument could be made that hardship decisions could take advantage of automation and significantly simplify the process of registering financial hardship whilst also reducing the time to execute a well-considered and agreed course of action.  With open data establishing itself as a key force in the future of consumer data management, industries across multiple sectors could easily demonstrate their corporate responsibility to the customers they serve in addition to providing core offerings.

Considering the cost to acquire new versus retain customers can cost up to 5 times more, it is a prudent strategy to assess the use of technology for all stages of the customer lifecycle.

About the Author

Matt is a senior credit consultant with Credisense and has worked within the credit industry for almost a decade, consulting on multiple facets of credit from data to decisioning and origination platforms.

Matt Shand
Credit Consultant