Just a few months ago, a good part of mortgage lenders’ books of business were doing well. Paying on time each month and not causing – or facing – any real issues. Today though, it is hard to predict how things will turn out. According to UK Finance, at the end of May 1.862 million mortgage holders had been given payment holidays, accounting for one in six mortgages, with the sector showing genuine support for homeowners in real financial difficulty by extending the offer of forbearance to 31st October for those who feel it is appropriate for their circumstances.
But the big question for the sector is how each customer will manage their finances when government-provided relief and payment holidays are over?
I believe the answer lies in data and forward looking analytics. This will not only improve understanding of existing customers’ capabilities to manage their debts, but provide the insight to carry out robust affordability checks for new mortgages.
In order to utilise the capabilities and insights of forward-looking analytics, more data needs to be collected to gain a deeper understanding of the household balance sheet. Valuable details include past financial behaviour data and any signs of affordability challenges; the causes of consumer default; and data from call centre conversations, surveys and expense patterns.
Blending all this information together with bureau data will provide a reliable affordability prediction. Relying only on bureau data and risk scores doesn’t tell lenders enough about how people spend the money.
Assessing Income and Expenditure
Affordability and driving the right outcomes for customers has never been so front of mind for mortgage lenders. Over the past couple of months, every market has been challenged to deal with credit-stressed consumers, in situations where they didn’t necessarily expect to be. And mortgage lending has most certainly not been an exception.
Industry leaders are responding by leveraging digital solutions that combine Open Banking data and ongoing updates on customer situations.
These solutions provide support at scale in three phases:
- Relieve (tactical phase): referral service enabling the customer to check their eligibility for relief and potentially provide a temporary solution that can be automatically and frequently reviewed.
- Nurture (mid-term): maintaining contact to understand situational changes and act accordingly, based on an accurate view of a customer’s true creditworthiness.
- Recover (long-term): planning for a controlled way to enable customers to return to “normal”, with seamless transitions either from COVID-19 relief back into mainstream creditor repayments, or into debt solutions for customers with longer-term financial stress.
In the tactical phase, reputational risk and customer outcomes are driving decisions. Critical data capture is essential. It’s critical to understand which customers are impacted by COVID-19 and likely to quickly bounce back and which would be in financial trouble regardless of the crisis. Therefore, COVID-19 must be captured and registered as a reason for payment holidays. Data and analytics will be key and will need to be revised. This is a fast-moving phase with intra-day changes and reactive responses – there are more people in arrears now than were expected to be; data four weeks ago is now “old data”.
Understanding changing circumstances in the mid-term phase requires regular customer communication and interaction and a flexibility regarding the customer journey – it may change to an affordability discussion or forbearance options. Payment holidays will roll-off at 90 days. Follow-up action is required in advance of expiry to ensure the right options are put in place, for the best outcome, in the longer term. Detour and change to an affordability discussion or forbearance options.
For regulatory reporting, the long-term, strategic phase requires understanding of the reasons for payment holidays or forbearance – was it COVID-19 or unrelated? Collections volumes will still be high, and journeys will get more complex as the initial volumes flatline. Touch points will be required to validate the customer’s financial wellbeing. We expect an increased need for digital-led payment plans.
Driving the Right Outcomes
There are four parts required to drive the right outcomes for the customer, while taking care of business:
- Discover the optimal path forward: Assess what data is needed and how to turn it into forward-looking data by blending what’s happening with bureau and behaviour data to determine prescriptive analytics.
- Remove the potential for friction: Implement true omnichannel communications to help engage customers through their journey to financial wellbeing, whilst at the same time capturing important data.
- Maintain the agility to leverage available data efficiently: Monitor closely, learn rapidly and be ready to change accordingly with flexible, data-driven collection solutions. Agility across the range of solutions will differentiate creditors.
- Invest in the areas where losses are truly mitigated: Build a robust collections ecosystem that includes data, insights, analytics, workflow, effective income expenditure and true omnichannel customer engagement. Understanding the relationship of capabilities across the ecosystem is critical to effective collections portfolio management.
The Role of Omnichannel in the Path to Financial Wellbeing
An omnichannel communications platform can help creditors engage with customers effectively to optimise their journey through recovery and rehabilitation, from the tactical phase to the long-term, strategic phase. The first step is to integrate and orchestrate the channels available to the organisation – email, SMS, WhatsApp, mobile apps, voice – to help with responses to payment holiday requests and a change in payment plans.
Having an automated, centralised view and co-ordination of the customer interactions will help lenders offer the right payment plan through the right channel for each customer, as well as keep in touch with them during the crisis to gather information or offer advice. Self-service payment terms will also reduce operational costs and help contact centre teams focus on customers who need human interaction to deal with their financial difficulties.
Components of Success
Taking customers down an omnichannel journey also changes the way segmentation, strategies, operating model, decisioning and performance management are all designed and delivered. Those businesses with strong omnichannel engagement strategies can make decisions on the vast majority of customers within five days of strategy commencement in collections and for those customers that have not responded there is a clearer indication of next steps at 7 to 10 days past due rather than the old 30 and 60 dpd.
In unpredictable and challenging times for businesses and homeowners alike, it is worth taking the time to challenge the operating model. Lenders should use the opportunity to ensure they have a comprehensive understanding of what works well and what can be defended as the optimal point of collections return. There will always be constraints, and too many organisations do not know the cost of those constraints. If they did, they would undoubtedly make far more effort to remove them.
