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The growth in people provides a true opportunity to lenders. Ensuring the credit can be afforded by those consumers remains top of the schedule, with recent changes designed to provide security.
The trick is to produce the tests needed protect the client and to satisfy the regulators but to do it in a manner that avoids damaging customer experience and driving away customers. How do credit lenders receive the balance right?
The FCA took over responsibility for the regulation of consumer credit in April 2014 and has since introduced a number of changes to the Consumer Credit Sourcebook (CONC). These principles traditionally applied supplying products including loans, mortgages, credit cards, and overdraftsany supplier of credit has to fall in line.
The lack of detail in some areas is leading to confusion among many credit providers on how best to implement these changes while the guidelines suggest that the degree of assessment around affordability can vary based on the item type and the amount of credit being provided. Many are discovering that the guidance is unclear on the information they have to catch so ensuring they collect the necessary level of detail is vital.
Customer-centric procedure
The FCA has suggested that the consumer should be at the center of the decision, irrespective. That is something the regulators and both credit providers agree on. Consumers have various choice and their own lives are busier than ever.
Making certain the transaction is clear to understand and simple to finish is important and the need to receive data with maintaining a fantastic customer experience and minimising the drop-out rate must be balanced by creditors. Having customer travels for those who desire another strategy to credit is the first step.
Identifying which clients require a light touch and that need more checks to ensure affordability is vital. CONC concentrates on the “proportionality” of an assessment for creditworthiness, which might have numerous elements like the type and cost of credit, but also on the past, current and future financial position of the customer.
Segmentation of consumers and the modelling of disposable income allows making sure a smooth and bespoke travel for each client, as well as lenders to satisfy division needs and regulatory requirements.
Consideration conundrum
Whether the consumer is applying online, in store or over the phone, working out a client’s disposable income is the key to assessing affordability. However, this isn’t quite as straightforward as it might first appear. By way of example, calculating income could be challenging if overtime and bonuses are to be properly considered.
Should you think about the family income or just the individual’s? How can you be sure their salary is without even asking for copies of payslips or bank statements accurate? And is that overkill for some products and lending amounts ? The exact same may be said for working expenditure out; assessing all an individual’s outgoings may mean asking a lot of questions that necessarily results in the client to depart the application process and impacts the customer travel.
Many lenders now choose to work with ordinary positions where their situation appear to sit outside of this ordinary and refer all customers. This has the potential and may be time consuming and costly.
Statistical models
Just how can you ensure customer journey that is resulting and your financing decisions practices works best for the client and lender? It is possible to use a combination of consumer segmentation methods and models to identify which customers should be transmitted on which travel. Then you may use information sources to confirm and assess their affordability.
When it comes to validating income, there are a number. Added tests can then be made, where a customer’s answers do not match the expectations based on the data from the bureau. This means that the creditor incurs the price if required and the customer isn’t asked for a degree of vulnerability. With regard to cost, using client demographic information, like that published by the ONS, means it is possible to model a connection between cost and income.
Getting the customer travel right and getting the balance right between fulfilling the regulators can seem as a small challenge. However, by undertaking a complete audit to know the customer travel across all touch points, online, telephone and in store, you can identify areas that may be tightened or at which the onus on the customer can be lessened through outside information sources to confirm and assess responses.
Having clear journeys established not just for merchandise lines but for different client segments, the proper questions asked making the process simpler and easier by committing without undermining them. The lending company is operationally slick, matches both regulatory requirements and its risk appetite and is ultimately more likely to make the sale.
