The world is likely to face a global recession in the coming year. What are banks doing to proactively help their customers meet these challenges and gain financial stability?
With inflation already wreaking havoc, 56% of Americans say that price increases have caused financial hardship in their households. In response, many have made hard choices and cut expenses where they can, by driving less, purchasing less, or dipping into their emergency savings account if they are fortunate enough to have one. In the second quarter of 2022, Americans had a total of $887 billion in credit card debt. That’s $100 billion more than the same period in 2021, an increase of 13%, the largest year-to-year debt increase in more than two decades. And all of this is coming at a time when people’s overall financial health has declined for the first time in the past five years, according to the Financial Health Network Pulse Trends Report.
More customers are struggling to stay on top of payments — and as the economy tightens, bank collection teams will be tasked with asking customers to do the impossible unless customer outreach and collection strategies change to fit current market needs.
Now is the time for banks to implement solutions that can help customers weather this financially challenging time. The pandemic taught us that even large financial institutions can pivot quickly and implement new product offerings and strategies on a much shorter timeline than anyone anticipated. Deploying solutions that help banks’ customers build more resilience, manage their day-to-day expenses, and offer concrete suggestions and resources for when making payments becomes difficult should be prioritized. Innovative solutions do exist.
When banks help customers avoid or navigate financial hardships, customers are less likely to foreclose on their houses or default on their payments and loans. This both helps the customers get back on track and achieve financial stability, while at the same time bolstering portfolios and fostering customer loyalty, a good business strategy for customer retention over time.
Customers already trust their banks to protect their money. That means banks are in a unique position to provide access to financial health resources that help their customers address the underlying or root cause of their financial struggles. The vast majority of lower-to-middle income Americans, 83%, say that they want to receive information and resources from their banks about managing their money or planning for their financial future.
Banks can help customers locate local solutions, empowering their customers to address the underlying reason for their payment hardship, and catch up and make on-time payments, while allowing the banks to avoid defaults and foreclosure.
The days when banks could gently roll out products over 18 months are a relic of the past. The way financial institutions responded to the pandemic showed us that it is possible to roll out appropriate and necessary responses that meet the immediate needs of their customers all while maintaining the integrity of their brand as well as returns to shareholders. Today, as the economy and the markets seem to be in turmoil, banks need to again put their customers’ financial health needs front and center. Doing so will lead to happier customers and better returns.
The world might be about to face an extended recession. But by putting customers’ financial health first, banks – and their customers – will find greater financial stability even as the markets shift beneath our feet.