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While COVID-19 payment holiday schemes have safeguarded against credit score drops, what do they mean for the lending sector?



While COVID-19 payment holiday schemes have safeguarded against credit score drops, what do they mean for the lending sector? 1

By Justin Basini, CEO and Co-Founder of ClearScore, the UK’s leading free credit score and credit marketplace

During the coronavirus pandemic, the government and financial bodies such as the FCA have provided a temporary financial safety net for consumers. Beginning in March, and extended in June, six-month payment holidays are in place for mortgages and loans (including car finance), as well as for credit cards and interest-free overdrafts. To date, payment holidays have been granted on 1.9 million mortgages, 961,700 credit cards and 688,900 personal loans[1]. A further 27 million interest-free overdrafts have also been granted. Whilst these schemes have undoubtedly provided essential financial relief for millions during the pandemic, they are not limitless, and as they draw to a close in October, consumers will have to resume repayments if they don’t want to become delinquent and negatively affect their credit score. Whilst analysing potential drops in credit scores gives us an idea of how payment schemes have impacted individuals’ personal finances, these schemes will have far-reaching implications for the lending sector as a whole, as credit providers continue to balance their exposure to risk once these schemes come to an end.

Our research into payment holidays shows that, perhaps surprisingly, only 11% of people have taken advantage of payment holidays, with another 4% planning to. Of those that have already utilised payment holidays, the majority have done so as a precaution, with just 35% of people doing so because they were unable to afford their credit card repayments, 28% as they were unable to afford their mortgage repayments, and 32% as they were unable to afford their personal loan repayments. With the majority of borrowers taking out payment holidays as a precaution, it follows that most should be able to afford their repayments once their payment holiday has come to an end. It also highlights that up to a third of people are likely to still require financial support if they are to avoid falling into problem debt, delinquencies and in the worst cases, repossessions or bankruptcy. With the furlough scheme also coming to an end in October, we can expect a further rise in unemployment, and further strain on specific segments and their ability to keep up with agreed payments.

When asked ‘How urgent was it to take out a payment holiday on a mortgage, credit card, personal loan or car finance?’
  Credit Card  Mortgage  Personal Loan Car Finance

I could not afford repayments

35% 28% 32% 30%

I could afford repayments, but only just

50% 53% 50% 57%
Not very,

I could afford repayments but did it as a precaution only

15% 19% 18% 13%

*Data based on nationally representative sample of 3,000 respondents

Consumers who signed up to take advantage of payment holidays for loans, credit cards and mortgages from the start of these schemes in March could have faced an average drop of 104 points to their credit scores over the initial three month period had they not been able to make repayments. Therefore, if these schemes had not been extended, millions of people could have been left with black marks against their credit histories that take six years to come off a credit report. With payment holiday schemes now extended to the end of October, someone who would be unable to pay their bills on their loans, credit cards and mortgage for the entire six months would have seen their credit score drop by a staggering 124 points. This potential drop in credit score over six months demonstrates just how essential these payment holiday schemes have been in safeguarding the financial well-being of those in the most financial distress due to the coronavirus pandemic. With the potential reduction of credit scores, this could reduce access to credit products, and certainly mean that people will end up paying more for products such as loans and credit cards. It is essential that lenders are as flexible and open as possible with their financial products as consumer spending will play a critical role in economic recovery from COVID-19.

The average ClearScore credit score in the UK is 360 (out of a possible 700). The table below demonstrates the credit score cliff edge that consumers could have faced without the introduction and further extension of payment holidays, with the average potential impact following a missed credit card, loan or mortgage repayment over the course of one, three and six months. The three-month column shows what could have happened to those unable to pay over the course of the next three months, had payment holiday schemes not been extended. The six-month column demonstrates what could have happened if the schemes were not introduced at all.

Credit product Average drop in credit score with one-month delinquency Average drop in credit score with three-months delinquency Average drop in credit score with six-months delinquency
Credit card 21 points 47 points 61 points
Loan 33 points 47 points 44 points
Mortgage 7 points 32 points 53 points
Credit card, loan and mortgage 50 points 104 points 124 points

**Data taken from ClearScore users who were up to date with all their payments in the year before lockdown (March 19 – Feb 20)*

Whilst taking advantage of these schemes won’t directly affect credit scores, it is likely to have an impact on future access to credit. While on the whole, payment holidays have undoubtedly been good news for consumers in financial hardship, they have placed additional strain on the lending sector, with lenders shouldering the burden of reduced cash flow as payments are put on hold. Lenders have been forced to tighten their lending criteria due to uncertainty in the market since the beginning of the pandemic, not least because many consumers’ ability to repay debt has been reduced due to instability in the employment market. Whilst lenders and providers are responding to the contraction of the market with a decrease in the number of products on offer, higher APRs and LTV offerings – making credit less accessible to consumers – these actions increase the likelihood of consumers’ ability to repay the debt they’re taking out.

Our research shows the number of prime credit card products available for prime customers decreased substantially from an average of 5.28 on the 1st of January 2020, to just 2.25 products on the 16th of May, whilst the average number of loan products available to prime customers decreased from 4.26 products to just 1.79 for the same time period. Lenders have started to implement new technologies for assessing affordability rather than relying solely on credit scores and reports to ensure sustainable and safe lending practises, whilst not restricting credit unfairly. The contraction of the lending market to date already shows the lasting impact that income instability from COVID-19 and subsequent payment holidays could have on the UK’s lending landscape.

Lending is ultimately a commercial decision, with lenders able to set their own criteria, aligning with their appetite for risk. Whilst credit files will show that payments are up to date if consumers have taken advantage of payment holiday schemes, lenders are within their rights to bring other factors into their affordability assessments. With the introduction of payment holidays, and the fact that credit report data can be up to three months out of date, lenders are having to shift to new data to ensure their affordability assessments are fair, up to date and a true reflection of someone’s ability to afford credit. For example, many lenders are increasing the rate of adoption of open banking as a result, giving lenders a clearer picture of a person’s suitability for credit by granting them visibility of their verified income source, other financial obligations and day-by-day spending patterns.

Along with open banking, lenders are beginning to add new questions and required information to their affordability assessments to help them create an accurate picture of someone’s ability to afford credit. This can include bank account information, whether an individual has taken a payment holiday, how susceptible an industry is to redundancies, and whether an individual has been furloughed. For the majority of consumers who took out payment holidays on their credit cards, loans, mortgages and car finance just as a precaution, rather than a necessity, these tightening of lending criteria could have a large impact as payment holiday schemes were designed only to be used when absolutely necessary. Whilst it stands that payment holidays will not affect credit scores or show up on credit reports, those who took payment holidays as a precaution are likely to find their future access to credit restricted unnecessarily, as they could have afforded their agreed financial obligations. Our advice to our users through the crisis has been to only access payment holdiays when absolutely necessary.

With the closing of the furlough scheme coinciding with the end of payment holidays in October, and unemployment forecasts hitting 4 million for the first time in UK history, responsible lending is going to become an increasingly critical lifeline for some people. The adoption of open banking and implementation of more detailed affordability assessments should help to ensure that the maximum number of consumers possible will still have access to credit in the coming months. Now is the time for lenders to incorporate these new technical capabilities to allow for the flow of data, and the continuing health of the lending market.

No one can know for sure what the credit industry and consumers’ financial well-being will look like at the end of 2020, but even with payment holiday schemes currently in place, what’s apparent is that the divide between ‘haves’ and ‘have nots’ will continue to grow. Those who struggled financially, especially younger consumers, at the start of the pandemic will bear the brunt of tighter lending criteria and a contraction of low interest products. The third of people taking payment holidays as a necessity due to not being able to afford repayments face a financial cliff edge when these schemes are withdrawn at the end of October. At the same time, those who took out payment holidays as a precaution rather than necessity are likely to find themselves also falling foul of tighter affordability assessments, restricting their access to credit.


The Psychology Behind a Strong Security Culture in the Financial Sector



The Psychology Behind a Strong Security Culture in the Financial Sector 2

By Javvad Malik, Security Awareness Advocate at KnowBe4

Banks and financial industries are quite literally where the money is, positioning them as prominent targets for cybercriminals worldwide. Unfortunately, regardless of investments made in the latest technologies, the Achilles heel of these institutions is their employees. Often times, a human blunder is found to be a contributing factor of a security breach, if not the direct source. Indeed, in the 2020 Verizon Data Breach Investigations Report, miscellaneous errors were found vying closely with web application attacks for the top cause of breaches affecting the financial and insurance sector. A secretary may forward an email to the wrong recipient or a system administrator may misconfigure firewall settings. Perhaps, a user clicks on a malicious link. Whatever the case, the outcome is equally dire.

Having grown acutely aware of the role that people play in cybersecurity, business leaders are scrambling to establish a strong security culture within their own organisations. In fact, for many leaders across the globe, realising a strong security culture is of increasing importance, not solely for fear of a breach, but as fundamental to the overall success of their organisations – be it to create customer trust or enhance brand value. Yet, the term lacks a universal definition, and its interpretation varies depending on the individual. In one survey of 1,161 IT decision makers, 758 unique definitions were offered, falling into five distinct categories. While all important, these categories taken apart only feature one aspect of the wider notion of security culture.

With an incomplete understanding of the term, many organisations find themselves inadvertently overconfident in their actual capabilities to fend off cyberthreats. This speaks to the importance of building a single, clear and common definition from which organisations can learn from one another, benchmark their standing and construct a comprehensive security programme.

Defining Security Culture: The Seven Dimensions

In an effort to measure security culture through an objective, scientific method, the term can be broken down into seven key dimensions:

  • Attitudes: Formed over time and through experiences, attitudes are learned opinions reflecting the preferences an individual has in favour or against security protocols and issues.
  • Behaviours: The physical actions and decisions that employees make which impact the security of an organisation.
  • Cognition: The understanding, knowledge and awareness of security threats and issues.
  • Communication: Channels adopted to share relevant security-related information in a timely manner, while encouraging and supporting employees as they tackle security issues.
  • Compliance: Written security policies and the extent that employees adhere to them.
  • Norms: Unwritten rules of conduct in an organisation.
  • Responsibilities: The extent to which employees recognise their role in sustaining or endangering their company’s security.

All of these dimensions are inextricably interlinked; should one falter so too would the others.

The Bearing of Banks and Financial Institutions

Collecting data from over 120,000 employees in 1,107 organisations across 24 countries, KnowBe4’s ‘Security Culture Report 2020’ found that the banking and financial sectors were among the best performers on the security culture front, with a score of 76 out of a 100. This comes as no surprise seeing as they manage highly confidential data and have thus adopted a long tradition of risk management as well as extensive regulatory oversight.

Indeed, the security culture posture is reflected in the sector’s well-oiled communication channels. As cyberthreats constantly and rapidly evolve, it is crucial that effective communication processes are implemented. This allows employees to receive accurate and relevant information with ease; having an impact on the organisation’s ability to prevent as well as respond to a security breach. In IBM’s 2020 Cost of a Data Breach study, the average reported response time to detect a data breach is 207 days with an additional 73 days to resolve the situation. This is in comparison to the financial industry’s 177 and 56 days.

Moreover, with better communication follows better attitude – both banking and financial services scored 80 and 79 in this department, respectively. Good communication is integral to facilitating collaboration between departments and offering a reminder that security is not achieved solely within the IT department; rather, it is a team effort. It is also a means of boosting morale and inspiring greater employee engagement. As earlier mentioned, attitudes are evaluations, or learned opinions. Therefore, by keeping employees informed as well as motivated, they are more likely to view security best practices favourably, adopting them voluntarily.

Predictably, the industry ticks the box on compliance as well. The hefty fines issued by the Information Commissioner’s Office (ICO) in the past year alone, including Capital One’s $80 million penalty, probably play a part in keeping financial institutions on their toes.

Nevertheless, there continues to be room for improvement. As it stands, the overall score of 76 is within the ‘moderate’ classification, falling a long way short of the desired 90-100 range. So, what needs fixing?

Towards Achieving Excellence

There is often the misconception that banks and financial institutions are well-versed in security-related information due to their extensive exposure to the cyber domain. However, as the cognition score demonstrates, this is not the case – dawdling in the low 70s. This illustrates an urgent need for improved security awareness programmes within the sector. More importantly, employees should be trained to understand how this knowledge is applied. This can be achieved through practical exercises such as simulated phishing, for example. In addition, training should be tailored to the learning styles as well as the needs of each individual. In other words, a bank clerk would need a completely different curriculum to IT staff working on the backend of servers.

By building on cognition, financial institutions can instigate a sense of responsibility among employees as they begin to recognise the impact that their behaviour might have on the company. In cybersecurity, success is achieved when breaches are avoided. In a way, this negative result removes the incentive that typically keeps employees engaged with an outcome. Training methods need to take this into consideration.

Then there are norms and behaviours, found to have strong correlations with one another. Norms are the compass from which individuals refer to when making decisions and negotiating everyday activities. The key is recognising that norms have two facets, one social and the other personal. The former is informed by social interactions, while the latter is grounded in the individual’s values. For instance, an accountant may connect to the VPN when working outside of the office to avoid disciplinary measures, as opposed to believing it is the right thing to do. Organisations should aim to internalise norms to generate consistent adherence to best practices irrespective of any immediate external pressures. When these norms improve, behavioural changes will reform in tandem.

Building a robust security culture is no easy task. However, the unrelenting efforts of cybercriminals to infiltrate our systems obliges us to press on. While financial institutions are leading the way for other industries, much still needs to be done. Fortunately, every step counts -every improvement made in one dimension has a domino effect in others.

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Has lockdown marked the end of cash as we know it?



Has lockdown marked the end of cash as we know it? 3

By James Booth, VP of Payment Partnerships EMEA, PPRO

Since the start of the pandemic, businesses around the world have drastically changed their operations to protect employees and customers. One significant shift has been the discouragement of the use of cash in favour of digital and contactless payment methods. On the surface, moving away from cash seems like the safe, obvious thing to do to curb the spread of the virus. But, the idea of being propelled towards an innovative, digital-first, cashless society is also compelling.

Has cashless gone viral?

Recent months have forced the world online, leading to a surge in e-commerce with UK online sales seeing a rise of 168% in May and steady growth ever since. In fact, PPRO’s transaction engine, has seen online purchases across the globe increase dramatically in 2020: purchases of women’s clothing are up 311%, food and beverage by 285%, and healthcare and cosmetics by 160%.

Alongside a shift to online shopping, a recent report revealed 7.4 million in the UK are now living an almost cashless life – claiming changing payment habits has left Britons better prepared for life in lockdown. In fact, according to recent research from PPRO, 45% of UK consumers think cash will be a thing of the past in just five years. And this UK figure reflects a global trend. For example, 46% of Americans have turned to cashless payments in the wake of COVID-19. And in Italy, the volume of cashless transactions has skyrocketed by more than 80%.

More choice than ever before

Whilst the pandemic and restrictions surrounding cash have certainly accelerated the UK towards a cashless society, the proliferation of local payment methods (LPMs) in the UK, such as PayPal, Klarna and digital wallets, have also been a key driver. Today, 31% of UK consumers report they are confident using mobile wallets, such as Apple Pay. Those in Generation Z are particularly keen, with 68% expressing confidence using them[1].

As LPM usage continues to accelerate, the use of credit and debit cards are likely to decline in the coming years. Whilst older generations show an affinity with plastic, younger consumers feel less secure around its usage. 96% of Baby Boomers and Generation X confirmed they feel confident using credit/debit cards, compared to just 75% of Generation Z[2].

Does social distancing mean financial exclusion?

As we hurtle into a digital age, leaving cash in the rearview, there are ramifications of going completely cashless to consider. We must take into consideration how removing cash could disenfranchise over a quarter of our society; 26% of the global population doesn’t have a traditional bank account. Across Latin America, 38% of shoppers are unbanked, and nearly 1 in 5 online transactions are completed with cash. While in Africa and the Middle East, only 50% of consumers are banked in the traditional sense, and 12% have access to a credit card. Even here in the UK, approximately 1.3 million UK adults are classed as unbanked, exposing the large number of consumers affected by any ban on cash.

Even when shopping online – many consumers rely on cash-based payments. At the checkout page, consumers are provided with a barcode for their order. They take this barcode (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped.

There are also older generations to consider. Following the closure of one in eight banks and cashpoints during Coronavirus, the government faced calls to act swiftly to protect access to cash, as pensioners struggled to access their savings. Despite the direction society is headed, there are a significant number of older people that still rely on cash – they have grown up using it. With an estimated two million people in the UK relying on cash for day to day spending, it is important that it does not disappear in its entirety.

Supporting the transition away from cash

Cashless protocols not only restrict access to goods and services for consumers but also limit revenue opportunity for merchants. While 2020 has provided the global economy with one great reason to reduce the acceptance of cash, the payments industry has billions of reasons to offer multiple options that cater to the needs of every kind of shopper around the world.

Whilst it seems younger generations are driving LPM adoption, it is important that older generations aren’t forgotten. If online shops fail to offer a variety of preferred payment methods, consumers will not hesitate to shop elsewhere. With 44% of consumers reporting they would stop a purchase online if their favourite payment method wasn’t available – this is something merchants need to address to attract and retain loyal customers.

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UnionPay increases online acceptance across Europe and worldwide with Online Travel Agencies



UnionPay increases online acceptance across Europe and worldwide with Online Travel Agencies 4
  • UnionPay International today announces that two of Europe’s leading travel companies, Logitravel and Destinia, have started accepting UnionPay.
  • This acceptance will enable users of the groups’ travel websites to make purchases using UnionPay payment methods.

The acceptance partnerships between the OTAs and UnionPay began in July 2020 for customers across 13 European countries and another 90 countries and regions worldwide.  The European countries covered by the agreements include the UK, Germany, France, Italy, Spain, Portugal, Norway, Denmark, Sweden, Austria, Switzerland, Hungary and Ireland.  The brands covered by these acceptances include and which together deliver more than 8.5 million worldwide travel bookings each year covering flights, hotels, holidays, car hire and other experiences.

With over 8.4 billion cards issued in 61 countries and regions worldwide, UnionPay has the world’s largest cardholder base and is the preferred payment brand for many Chinese and Asian expatriates and students based in Europe, as well as an increasing number of global customers. These cardholders are also particularly attractive to the two OTAs.  Despite the impact of Covid-19, Logitravel and Destinia expect to see the demand for travel across the European continent as well as that between Europe and Asia return to growth in the coming years. They are now placing significant focus on offering more payment options and smoother payment services to meet this demand.

The partnerships incorporate UnionPay’s ExpressPay and SecurePlus technology, which will ensure seamless transactions for the customers, contained within a single process through the relevant websites.  UnionPay’s technology also provides for the requirement to authenticate transactions under the EU regulation Payment Services Directive 2 (PSD2) ensuring that sites will be compliant as soon as the relevant countries apply the requirements.

Wei Zhihong, UnionPay International’s Market Director, said: “This is a major partnership with two of Europe’s leading online travel companies.  Logitravel and Destinia are brands which have been at the forefront of e-commerce for many years and we are very excited to be working with them to extend their reach to new audiences. This highlights the work that we have carried out in ensuring that our technology provides effective solutions for the biggest e-commerce sites both in Europe and around the world. We look forward to announcing many more similar agreements in the near future.”

Jesús Pons, Chief Financial Officer at Logitravel Group said: “UnionPay has always been on our radar, and since travel has become a crucial part of its development, Logitravel felt it important to develop this important partnership. It really was an obvious decision for Logitravel since both companies share a passion for e-commerce and emphasising the payment experience for their customers.”

Ricardo Fernández, Managing Director at Destinia Group said: “We believe that this is the beginning of a really strong relationship.  Our discussions with UnionPay in reaching this partnership have demonstrated their understanding of the needs of major online merchants and their ability to deliver the highest quality systems.  We look forward to working together on further partnership as we move forward.”

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