The spread of Covid-19 is impacting everyone, and organisations of all sizes are scrambling to meet the challenges the pandemic throws at them.

Financial organisations won’t face the same tests as restaurants and pubs, but there are still significant consequences which need to be tackled pro-actively, and firms must remain focused on treating customers fairly throughout.

Almost two million people had applied for Universal Credit since mid-March, and lenders have now initiated payment freezes for over 1.6 million mortgages.

In this new and challenging landscape, lenders need to re-interpret their practises around treating customers fairly, tailoring processes to the current situation at every step of the customer journey, from point of access right through to collections.

Access to credit and managing risk

Access to credit for people who find themselves in financial difficulties as a result of the pandemic will be crucial. With the UK savings ratio at one of the lowest levels in over 20 years, many will turn to credit to meet their living costs, particularly those on zero-hour contracts and gig-economy workers.

For creditors, this means taking on more risk and increased default rates when customers struggle to meet payments in the medium to long term. With existing credit lines, it will be harder to proactively tackle this, aside from credit limit reductions for at-risk demographics.

Many creditors may also elect to combat risk with more stringent acquisition and affordability assessments, and reduce overall lending by restricting credit to those most in need. Open Banking can support the accuracy of affordability assessments, optimising lending decisions and improving financial inclusion, which can lead to better outcomes for all parties.

Alternatively, lenders can offer these customers extended credit limits, following some UK banks. However, giving more credit isn’t always the best solution, especially if it’s unaffordable, so robust affordability checks are vital.

All decisions should carefully consider these second and third order consequences, and focus not only on the business but also ensuring customers are being treated fairly.

Payment freezes

To ease the financial stress put on households by the pandemic, mortgage lenders are offering struggling customers a three-month mortgage emergency payment freeze. This is an acceleration, and slight extension, of the government’s already planned breathing space scheme but specifically for mortgages at this crunch time.

For firms implementing these rules there are important things to consider. Firstly, what happens at the end of the freeze period if the customer still cannot afford to pay? A new process may be required for these vulnerable customers, rather than existing normal collections processes kicking in.

Elsewhere, lenders need to incorporate how payment freeze customers are reported to the credit reference bureaus. There is already agreement among credit reference bureaus and a number of industry organisations to minimise any adverse effects to the credit files of consumers availing of emergency payment freezes for the duration of the freeze period.

It’s also important to remember that payment freezes might not always be the best solution where customers are facing long-term financial problems, especially as interest continues to accrue under these arrangements.

There are other ways to support customers, for example, interest could be waived for some customers, or other fees removed in the short term. Another support option is sign-posting debt advice, or working with a recognised partner like the debt charity, StepChange.

Again, affordability assessments could prove valuable here, using additional sources of data such as Open Banking data to identify a solution tailored to the customer’s specific circumstances.

Managing collections

With forced redundancies and reduced hours also impacting people’s ability to meet their financial obligations, this will likely lead to increased pressure on collections functions, especially for lenders not set up to cope with the extra volumes.

While the steadily employed with salaries might be in a better financial situation enabling them to pay more due to decreased outgoings such as transport and recreational costs, those on the brink month-to-month might be tipped over the line and need support.

Increased call volumes are likely, and call centre staff will spend more time doing income and expenditures, driving up handling times that impact not just collections but also stretch broader call centre services. In the face of capacity issues, the agility to adapt strategies and offer more digital and self-serve options for customers is vital.

Reviewing the tools, training or digital solutions available to help employees and customers, as well as drawing upon additional resources by retraining in-branch staff or bringing in external help to handle tasks, could ease the strain.

However, it’s crucial to make sure any third parties adhere to fair treatment standards, as more customers will be considered vulnerable and might need special treatment.

Moving more staff into specialist teams is also worth considering, as well as drawing upon specialist providers with expertise in managing vulnerable customers.

At every step of the way, organisations need to effectively manage the impacts of both financial and non-financial vulnerability, and recognise the need to apply specialist differentiated treatment to meet fair customer treatment obligations.