The Lending Guidelines introduced by the Financial Conduct Authority (FCA) in 2014 affect more than just mortgage and loan application processes.  They also apply to mobile operators that offer finance for handsets, utilities suppliers that are obligated to help customers falling into arrears with their bill payments and housing associations that supply Universal Credit payments or rent properties out.

The FCA states that domestic financial services, telecoms and utilities companies must treat customers according to these guidelines, so that affordable and sustainable arrangement plans can be set.

Looking at a customer or household’s affordability and ability to pay using the income and expenditure (I&E) assessment is a critically important new way of operating for financial, telecoms and utilities suppliers.  The regulators FCA, Ofgem and Ofcom are clear that sound affordability assessments are required to demonstrate responsible operating and lending and operating - so a serious breach of the FCA Responsible Lending Guidelines could jeopardise a provider’s credit license.

The issue is that implementing I&E can be a time-consuming and expensive process for the customer management, collections and recoveries teams in these organisations. Many companies don’t yet have the scale or infrastructure to undertake assessments responsibly, efficiently or accurately. Today’s customers, even if they are in arrears, are looking for a positive experience and a poor I&E process can cause unnecessary effort and frustration for customers.

Often, as in this case, the problem and opportunity starts with the process.  I&E forms are lengthy and are – significantly - often filled out over the phone between a contact centre agent and the customer, who might not have all required information to hand. Sometimes the ‘completed’ I&E form isn’t validated because the provider isn’t confident that the true financial position of the customer has been accurately captured.

This in turn can potentially lead to the worst possible outcome: a set of payment arrangements that in some cases may worsen a customer’s financial situation or lead to a further broken promise which then repeats the process.

At TALKINGTECH we recommend taking two steps towards solving this problem.

1. Being smart with data

Best practice shows that to ensure the accuracy of the I&E data, lenders should access either third party credit reference data or the customer’s bank statement. FCA guidelines encourage the use of third party data and the sharing of data directly between lenders for this validation process.

2. Transform the I&E process

Putting the customer in charge of when and how they can provide information means customers can play an equal part in the process. Giving the customer time to gather their statement data is as important as making the I&E process easy and simply to understand.  One answer is to create a form that customers can access from all digital devices, so they can perhaps start to fill in the data on their mobile with information to hand, then look up figures later at home on their PC.

By employing new solutions and best practice when it comes to digital collections, service providers can improve their operational efficiency and have confidence in their compliance with industry guidelines and regulations.

Providers can also play a greater part in promoting responsible spending habits and include third party debt advice within their I&E forms, such as Step Change (stepchange.org).

All this will help providers to understand their customers’ finances in greater detail and increase customer education and accountability. Combining this with personalised payments communications, providers can also deliver more customer-centric, experiences.  Customers can be happier, which reduces customer churn, increases revenues and reduces costs.  This feels like an easy win to me.

Grant de Leeuw, General Manager Europe, TALKINGTECH