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The research from information services company Experian, based on a survey of 1,000 consumers, has revealed that the majority (80 per cent) of borrowers do not know if their credit providers monitor their financial health – despite half believing they should, to prevent hardship.
Further, not many consumers were not aware that some lenders can detect financial strain at an early stage. Around half (44 per cent) thought they are only identified as being in hardship once they default on a payment.
A fifth believed it is only possible if they contact the lender themselves, while one in 10 thought things like change in income or spending habits could be a trigger.
But some lenders may be able to detect financial stress through a loss or drop in income, greater reliance on savings, a shift in spending to high-priority items and an appetite for high-cost loans.
Around two-fifths (39 per cent) of consumers thought lenders should proactively identify people who could be headed towards financial hardship, while 46 per cent said there should be earlier communication with people who could be headed towards hardship.
The belief that lenders should continuously monitor a customer’s financial position was strongest for home loans, with 55 per cent of survey respondents agreeing. Credit cards followed (52 per cent), along with personal loans (49 per cent) and buy now, pay later (43 per cent).
Mathew Demetriou, general manager of decision analytics at Experian Australia and New Zealand, argued that credit providers should be able to see all of the products a customer may have across different institutions, as a “customer may look healthy in one portfolio but looks different in another”.
“Using data and analytics to fully understand a customer’s current circumstances, needs and preferences and combining this with automated decisioning can help lenders deliver personalised treatment plans quickly and at scale, and reach customers on their terms,” Mr Demetriou said.
“This gives every customer the support they need, whether they’re in the recovery process already, or better yet, to help them avoid it in the first place.”
However, three in five consumers felt lenders had done a good job in 2020 providing financial hardship assistance to those that needed it, with more than half saying more support would be needed this year.
Half of consumers thought lenders could offer more flexible payment holidays or deferral plans, to support people facing financial hardship.
“Proactive assessment doesn’t just show genuine care for customers and cement your reputation as a fair and socially responsible business, it is crucial in being able to identify and assist those who may be financially vulnerable and at risk of facing hardship.
“Ultimately, it helps lenders make appropriate lending decisions for each individual and offer the right support at the right time, while also giving customers confidence they are supporting them at all times.”
On people who are facing financial hardship, two-fifths of respondents thought there should be more alternative ways for them to communicate with their provider.
Nearly a third (32 per cent) thought offering a mix of digital and phone conversations was best, while two-fifths would prefer only chatting over the phone. One in five said they would prefer to seek support via digital channels only.
Mr Demetriou commented it is “critical” for providers to offer multiple channels for communication, including self-service options.