銀行は増加する脆弱な顧客に対応する準備をしなければならない

The rising cost-of-living has become a global challenge. Driven by increases in food and energy prices its impact has been heavily felt by low-income households, and unsurprising it has become a dominant social and economic issue. With interest rates also now moving sharply upwards in most developed markets, the growing risk for banks is this challenging economic environment will translate into higher loan delinquency.

However, the challenges are broader than this. Given the social impact, most financial regulators are intervening to enhance consumer protection. The UK’s Financial Conduct Authority (FCA) is a good example here, recently publishing several ‘Dear CEO’ letters alongside updated guidance on this topic. Of note here is the extension of duties towards vulnerable customers to consumers affected by the rising cost of living.

Who are vulnerable customers?

Core here is that the FCA, like many regulators, has deliberately adopted a broad view on consumer vulnerability. It extends well beyond typically identifiable groups, for example those with dementia, to cover anyone where their situation, circumstances, or events could put them in vulnerable state. This could include bereavement, diagnosis of a serious illness, or job loss. The essence of the approach is ensuring ‘good outcomes’ for any vulnerable customer, rather than fine-tuning the definition of who is one.

Importantly, this includes financial hardship. Here the FCA reckons that around 27% of the UK’s population has low financial resilience, with an expectation that this will significantly increase in coming months due to the cost-of-living crisis. While government intervention will hopefully curtail the full impact of expected energy price growth in coming months, for most banks across the globe, the proportion of customers that may be vulnerable is likely to expand to a sizeable proportion of the customer base over rest of 2022 and 2023.

What do banks need to do?

There are several principles financial firms need to apply regarding improving outcomes for customers in vulnerable circumstances. These broadly fall into three main areas:

• The quality of identification of vulnerable customers and initial response by frontline staff and/or systems to ensure a consistent positive front-line experience with staff empowered to be flexible to do the right thing and with the customer only needing to inform the institution once (such as reporting a death);
• The response to customer needs throughout product design, flexible customer service provision and communications, including provision of appropriate products / services, access to support or protection (such as around gambling or scamming), and ability to support more complex situations (for example working with Power of Attorneys or Court of Protection orders);
• Monitoring and assessment procedures to ensure firms are meeting needs of vulnerable customers effectively and consistently (such as complaints analysis, interaction monitoring, as well as feedback from specialist support groups), with governance to ensure improvements are made where this is not happening.

With many regulators focusing on ‘good outcomes’ rather than box-ticking across these areas, but also from a commercial impact perspective, banks need to be proactive in looking for potentially vulnerable customers, in addition to preventing clear failures. While banks need to ensure they act appropriately when dealing with explicit customer notification (such as a reporting of death) or effectively capturing implicit notification (for example a customer may mention they have cancer, but not directly ask for support), they should also take the initiatives in looking for vulnerability. Banks should identify those with low financial resilience and likely to be affected by upcoming energy price rises now, and actively intervene, rather than wait until a delinquency situation arises.

What are the implications for the technology landscape?

While tackling the growth of vulnerable customers should remain at heart a people-and-culture issue for banks with governance, staff training, and empowerment at the core, it will have key impacts for banking platforms and systems, particularly around product design, process flexibility, and monitoring.

Banking platforms should support the product design that incorporates the potential requirements of vulnerable customers from the start. This is to avoid ‘computer says no’ scenarios where front-office staff are powerless to provide appropriate flexibility because the situation doesn’t fit the standard mould. This includes consideration at the data level, such as ability to incorporate Power of Attorney situations within an account or flag vulnerable customers, as well as at the design level, such as built-in adaptability to adjust repayment schedules.

The drive for process standardisation, particularly of customer-facing processes, must include built-in consideration of vulnerable customers in design. Automation is still critical here, such as to enable one-stop notification; however, given the likely scale involved, expected adaptability needs to be built into the core process orchestration streams rather than letting these be managed as manual exceptions. The widespread loan restructuring forced on banks during the pandemic was not that long ago, and banks must prepare to be able to take similar actions with the cost-of-living crisis.

Then, with the explicit regulatory demands around monitoring and assessment, supporting monitoring, analytics, and reporting systems are clearly critical. However, with the obligation to be proactive as well as reactive, banks should be looking at adopting wider analysis to identify potentially vulnerable customers and act early. For example, banks could evaluate transaction activity and accounts to identify those at risk from energy increase or even suffering from issues such a problem gambling, with customers be guided towards appropriate support / controls before delinquencies situations have occurred. This should extend to appropriate financial promotion controls, so customers experiencing financial hardship are not encouraged to take out loans that may be unsuitable from a long-term perspective.

Wider implications

From a wider perspective, these requirements form part of an ever-growing list of changing demands on bank systems. This is driving an expanding gap in capabilities between many banks which run on a patchwork of legacy systems, where the ability to implement change to product, processes, or systems often inhibited, and those which deploy modern, digital core banking platforms, which are designed to enable product / process change, and customer insight. While banks need to tackle individual regulatory demands in the short-term, banks must evaluate this in the broader context of, and need for, platform modernization and digital transformation.