Products such as these can help provide risk and compliance teams with greater insights into areas of vulnerability as well as predict arrears risk and monitor the impact of financial products on their customers.
This can help them ensure no group or individual is underserved.
FTA: How can data be applied to the mortgage market to achieve the best results?
SS: Data can be applied to the mortgage market in a similar way to other lenders, for example by analysing levels of vulnerability, offering more personalised products designed to better meet someone’s financial situation and stepping in if required to provide help at a much earlier stage.
Using AI, we have found it possible to predict how changes in rates will impact individual customers’ financial situation, probability to enter arrears, and their susceptibility to become financially vulnerable. These insights can be applied in a preventative fashion to prevent worse outcomes, or to support customers after such changes.
FTA: Your research suggests one in three borrowers believe their bank could be doing more to support them in making informed decisions. What should banks be doing?
SS: The financial system as a whole is in immediate need of an overhaul to create a fairer, more inclusive model with vulnerable borrowers at its heart.
With 37 per cent of financially vulnerable people saying that their bank could do more to help them make informed decisions, banks certainly have a responsibility to step up, however, cross-sector collaboration is necessary if things are to improve.
Banks, just like other financial institutions, lenders, and the government, must prioritise good customer outcomes.
A key aspect of providing support to borrowers is to leverage more effective insights into borrower vulnerability and affordability, allowing lenders to provide more tailored support, identify those at financial risk and intercept issues before they develop into long-term financial problems.
FTA: How will the consumer duty improve borrower outcomes?
SS: Currently, it is clear that vulnerable customers are suffering; 44 per cent of financially vulnerable people are likely to end up in debt when taking out new credit products – twice as likely as the UK average, which is 22 per cent.
The new consumer duty rules require firms to not only act to deliver good customer outcomes, but to understand and evidence whether those outcomes are being met, as well as ensure fair outcomes for vulnerable customers.
The rules require many lenders to consider new approaches to support borrowers and take a more outcomes-based view throughout the affordability process. More than three-quarters (77 per cent) of lenders believe that the new rules are the first step in a long journey to improving borrower outcomes.
By holding financial institutions accountable to equitable outcomes, underserved populations should start to experience more positive financial outcomes.
