CAN TECH-FUELLED COMPASSIONATE COLLECTIONS CALM THE TIDAL WAVE OF DEBT?

By Andy Taylor, Chief Marketing Officer at Aryza.

Beyond the obvious implications on public health, the next biggest knock-on effect of the pandemic was on people’s finances. As the 2020 lockdown began, the country was dealing with economic uncertainty caused by Brexit, as well as the levels of household debt that followed the financial crisis of 2007.

Schemes including furlough and a Universal Credit uplift, as well as leeway on commitments such as council tax, acted as an essential stopgap for an immediate cash flow crisis. But now, with most of these measures having come to an end, the country is preparing for a ‘tidal wave’ of debt. Research from Centre for Social Justice estimates that 3.3 million people are currently in ‘severe’ debt, with complications from the pandemic adding £10 billion to the average UK household debt.

Finance is a sensitive, emotional issue, and typical methods of recovery can often exacerbate the situation. As the nation looks forward, now is the perfect time to approach the collection and resolution of owed money in a new and transformative way.

Wider industry shift

Regulation and legislation in the financial services industry has been gradually moving towards recognising the disparate situation of each consumer. For example, the Finance Conduct Authority’s (FCA) guidance towards the treatment of vulnerable consumers paved the way for the Government’s new ‘breathing space’ initiative, launched in May this year.

Other steps to protect the consumer have also resulted in a crackdown on unethical payday loan lending, with the 0.8% price cap that was introduced in 2015. This sentiment has been largely echoed throughout the pandemic, as many on low or reduced income were buffered by specialist grants, funds and schemes. However, not all people were eligible and some did fall through the cracks, unable to access support.

The charity StepChange reports that the number of UK residents in ‘severe’ debt rose by 600,000 in the first year of the pandemic alone. Aryza research published in October 2021, found that over 10 per cent of those surveyed had debt with their local authority and now that access to the COVID-19 hardship fund for support with council tax has passed, this number is only set to rise – with dire consequences such as eviction if residents fall behind.

Back in June 2020, the Money and Pensions Services predicted a huge 60 per cent rise in demand for urgent debt advice by the end of 2021. With council tax arrears placed at £4.4billion in March 2021, this looks likely to be true. There’s a perfect storm waiting to happen, and the sector faces a challenge. Will it calm the situation by building on the stepping stones of compassion that have already been laid, or aggravate it further?

The case for compassion

As well as having ramifications on wellbeing, traditional tactics involving bailiffs are also often ineffective. By speaking to clients that use Aryza products, we’ve learned that 32 per cent of customers that do not respond to traditional collections will interact with a digital solution. One in five people are also happy to make an online payment without speaking to an advisor. Removing invasive techniques such as visiting people’s homes, bombarding them with letters or phone calls can reduce a lot of anxiety people experience when repaying debt.

Using technology such as open banking, it’s possible to go one step further. A new wave of digital debt collection solutions is putting the debtor back into control of their finances, by offering a choice of realistic payment terms based on their actual finance data – 42 per cent of customers are happy to use open banking services, showing the willingness to adopt the solution. Once a debtor is engaged with the system, it’s possible to offer financial advice to help them reduce their problem debt in future, rather than demanding more than what they can afford and sending it spiralling out of control.

The final fintech investment

Following on from the FCA’s vulnerable customers guidance, and the ‘breathing space’ initiative, the Centre for Social Justice (CSJ) recently launched a forward-thinking solution to the country’s spiralling debt which echoes this sensitive approach. Alongside organisations representing enforcement firms and specialist charities, the CSJ launched a new Enforcement Conduct Authority (ECA), with the aim to stamp out harmful collection tactics, while helping vulnerable people in arrears get back in control.

Aryza has partnered with the CSJ at this critical time, championing the use of digital tools and open banking to create more sensitive mechanisms for recovery. As well as providing better outcomes for customers, we’ve also found that collections teams are benefiting from a 73 per cent reduction in the cost of processing cases when doing so digitally.

With debt levels soaring, demand on services is high. Just as other technology investments have increased efficiency in the finance sector – such as automated invoice processing, reconciliation and credit scoring – taking the same approach towards debt collection could create a streamlined and fair process that works for both the business and the debtor.

By Andy Taylor, Chief Marketing Officer at Aryza.

Beyond the obvious implications on public health, the next biggest knock-on effect of the pandemic was on people’s finances. As the 2020 lockdown began, the country was dealing with economic uncertainty caused by Brexit, as well as the levels of household debt that followed the financial crisis of 2007.

Schemes including furlough and a Universal Credit uplift, as well as leeway on commitments such as council tax, acted as an essential stopgap for an immediate cash flow crisis. But now, with most of these measures having come to an end, the country is preparing for a ‘tidal wave’ of debt. Research from Centre for Social Justice estimates that 3.3 million people are currently in ‘severe’ debt, with complications from the pandemic adding £10 billion to the average UK household debt.

Finance is a sensitive, emotional issue, and typical methods of recovery can often exacerbate the situation. As the nation looks forward, now is the perfect time to approach the collection and resolution of owed money in a new and transformative way.

Wider industry shift

Regulation and legislation in the financial services industry has been gradually moving towards recognising the disparate situation of each consumer. For example, the Finance Conduct Authority’s (FCA) guidance towards the treatment of vulnerable consumers paved the way for the Government’s new ‘breathing space’ initiative, launched in May this year.

Other steps to protect the consumer have also resulted in a crackdown on unethical payday loan lending, with the 0.8% price cap that was introduced in 2015. This sentiment has been largely echoed throughout the pandemic, as many on low or reduced income were buffered by specialist grants, funds and schemes. However, not all people were eligible and some did fall through the cracks, unable to access support.

The charity StepChange reports that the number of UK residents in ‘severe’ debt rose by 600,000 in the first year of the pandemic alone. Aryza research published in October 2021, found that over 10 per cent of those surveyed had debt with their local authority and now that access to the COVID-19 hardship fund for support with council tax has passed, this number is only set to rise – with dire consequences such as eviction if residents fall behind.

Back in June 2020, the Money and Pensions Services predicted a huge 60 per cent rise in demand for urgent debt advice by the end of 2021. With council tax arrears placed at £4.4billion in March 2021, this looks likely to be true. There’s a perfect storm waiting to happen, and the sector faces a challenge. Will it calm the situation by building on the stepping stones of compassion that have already been laid, or aggravate it further?

The case for compassion

As well as having ramifications on wellbeing, traditional tactics involving bailiffs are also often ineffective. By speaking to clients that use Aryza products, we’ve learned that 32 per cent of customers that do not respond to traditional collections will interact with a digital solution. One in five people are also happy to make an online payment without speaking to an advisor. Removing invasive techniques such as visiting people’s homes, bombarding them with letters or phone calls can reduce a lot of anxiety people experience when repaying debt.

Using technology such as open banking, it’s possible to go one step further. A new wave of digital debt collection solutions is putting the debtor back into control of their finances, by offering a choice of realistic payment terms based on their actual finance data – 42 per cent of customers are happy to use open banking services, showing the willingness to adopt the solution. Once a debtor is engaged with the system, it’s possible to offer financial advice to help them reduce their problem debt in future, rather than demanding more than what they can afford and sending it spiralling out of control.

The final fintech investment

Following on from the FCA’s vulnerable customers guidance, and the ‘breathing space’ initiative, the Centre for Social Justice (CSJ) recently launched a forward-thinking solution to the country’s spiralling debt which echoes this sensitive approach. Alongside organisations representing enforcement firms and specialist charities, the CSJ launched a new Enforcement Conduct Authority (ECA), with the aim to stamp out harmful collection tactics, while helping vulnerable people in arrears get back in control.

Aryza has partnered with the CSJ at this critical time, championing the use of digital tools and open banking to create more sensitive mechanisms for recovery. As well as providing better outcomes for customers, we’ve also found that collections teams are benefiting from a 73 per cent reduction in the cost of processing cases when doing so digitally.

With debt levels soaring, demand on services is high. Just as other technology investments have increased efficiency in the finance sector – such as automated invoice processing, reconciliation and credit scoring – taking the same approach towards debt collection could create a streamlined and fair process that works for both the business and the debtor.