The cost-of-living crisis is hitting banking customers hard, with several indicators showing the various ways rising prices are putting financial stress on household budgets. A growing number of people have reported¹ cutting down on essentials or dipping into their personal savings and taking out loans to pay bills.

Unfortunately, things look set to get worse before they get better. Between now and the end of 2024, it is estimated² that UK families will see their annual mortgage payments rise by an average of £5,100. The human impact of this unfolding crisis is already very real: the charity StepChange has found that 6.4 million Britons are feeling the pressure of debt and that this has negatively impacted mental health, relationships and the ability to work.

Amid this backdrop, A&M held an industry dinner that saw financial services business leaders come together to discuss how this moment of crisis is impacting customers and employees’ mental health and how financial institutions can take advantage of digital capabilities to be there for them in this critical time.

Here we outline the key takeaways from the session. 

Society is demanding banks to step up during tougher times

There seems to be consensus among customers, shareholders and regulators that tackling this crisis is not a role for the government alone. Perhaps more than ever before, the wider business community and the banking sector in particular is expected to step up and help customers cope with financial pressures. In the UK, banks are second only to government in terms of where consumers expect financial help to come from during tough times. 

From a regulatory perspective, and in light of lessons learned from the Covid-19 pandemic, financial watchdogs are closely watching banks’ measures to deal with struggling clients. For example, the Financial Conduct Authority (FCA) has recently written to more than 3,500 lenders across the UK to warn that it had found evidence of “inconsistent practice” when it came to the handling of struggling borrowers. The new Consumer Duty, which comes into force next June, will put even higher burdens on banks by requiring them to pursue “good outcomes” for customers and avoid foreseeable harm, putting extra emphasis on the most vulnerable.
 
Pressures are already building up within frontline staff

Banks are already experiencing increased demand for support services from customers in financial stress. Anecdotal evidence from the session suggested that call volumes have tripled in recent months. This comes at a time when organisations face high rates of attrition –up to 30% in some contact centres – and difficulties recruiting new staff. 

This has put incredible strain on existing frontline teams to carry out their very important roles to a growing number of customers. It is also important to note that these workers are likely to be on lower wages and may be personally facing the same issues as the people they are in contact with. Under this scenario, banks should give these workers further ongoing training to be able to engage with clients and communities to address their financial concerns in an empathetic yet professional way. 
 
That said, one should not underestimate the role of digital in facilitating the kind and empathetic support that customers need in times of personal strife. It might be that for some, talking about money worries in the familiar space of their home, via a video call, will be less traumatic than a face-to-face appointment at a physical branch. For others, an online chat will be preferred over telephone. In fact, a FCA survey in 2020 showed that adults with poor mental health find dealing with customer services on the phone confusing or difficult. Every individual is different – it is best to give customers options so they can choose the best approach for their particular situation.

Workforce financial wellbeing should go beyond short-term initiatives

Another key area of concern is how banks are managing the impact of the ongoing cost-of-living crisis within their own workforce. Money worries have been proven to affect employees’ mental health and directly impact absenteeism, engagement and productivity levels. Also, it is important to acknowledge that the cost of living is impacting everyone, but not everyone equally, with lower paid employees worst affected and therefore the ones most in need of help.

While headline-grabbing initiatives such as one-off payments to help employees get through the worst of the crisis are welcomed, financial wellbeing support should go beyond pay. Strong leadership is required to invest in targeted and structural changes to make the workplace more conducive to mental and financial wellbeing. Focusing on short-term, superficial initiatives – e.g. fresh fruit in the office or meditation apps – will continue to fail to address the issue in its entirety and complexity.

How digital and data can be leveraged to support vulnerable customers

Building a rich picture of consumers’ financial circumstances is critical to identify warning signs early on and find the best way to support and transact with them. Data and broader digital capabilities are enabling financial services providers to do exactly that, at a speed and scale that was simply not possible during previous crises.

One of the use cases discussed was the leverage of data to improve the journey faced by vulnerable customers when seeking support. It is estimated that customers have, on average, 40 relationships with providers including banks, insurers, utilities and mortgage lenders. For emotionally vulnerable individuals, having to disclose their financial circumstances to multiple businesses, often through a poor customer call experience, adds to anxiety and stress. 

There are businesses looking at ways to address this issue. One solution being piloted is a platform that allows clients to share their data and set up specific support needs with multiple financial providers, ultimately minimising the number of interactions required to disclose their vulnerability. 

Vulnerability disclosure is also not always forthcoming; discussions touched on the ability to support distressed customers as effectively as possible by using data, but within the context of GDPR and broader privacy concerns. For example, being able to use observed behaviours or questions to inform triaging at contact centres, and thereby direct the customer to the most qualified agent to support their needs. 

Another area where enriched data can play a role is credit scoring. Whilst traditional methods of credit scoring have been helpful to date, many are no longer fit for purpose and will be even less in the uncertain economic environment we are experiencing. With mortgage defaults set to increase and changes in the job market/employment models, customers are at risk of being penalised for reasons out of their control. 

Moreover, reduced credit scores mean that people who are already under financial stress will be further punished. The use of large swathes of open banking and customer data to build a more dynamic picture of a person’s financial health, alongside innovative algorithms methods to speed up lending decisions and assess affordability more accurately are some of the solutions discussed to address this problem.

Conclusion

The current crisis is a chance for financial services providers to take bold actions to support the financial and mental health of their employees and customers. By being at the forefront of helping people through this difficult time, banks have the opportunity not only to meet society’s expectations in relation to their role in this crisis but also to create deeper relationships with their clients that will generate long-lasting business impacts. 

To read more about A&M’s insights into this topic, please download our white paper: “Bridging the gap: the role of banks and fintechs in averting a mental health crisis.”

If you would like to discuss these ideas further with our team, please contact Ian Foottit, Rav Hayer, Wayne Brown or Nneka Orji.

A&M. Action. Leadership. Results.

A&M’s Financial Services Industry professionals have global experience in helping banks and other financial services businesses transform. Unlike other advisors, our focus is on working with the operating teams and equipping them to make change a reality. Our team specialises in using high quality data to create efficiencies, unlock strategic insights and drive new sources of revenue and value at scale. Our approach to digitalisation is proven and we can deliver change in months, not years.
 

1.https://www.bloomberg.com/news/articles/2022-10-24/soaring-cost-of-living-crisis-brings-back-1970s-shopping-habits
2.https://www.resolutionfoundation.org/press-releases/britains-26-billion-mortgage-hike-five-million-households-set-for-average-mortgage-bill-increases-of-5100-by-end-of-2024/