Consumer used car finance market led the recovery in June

New figures released today by the Finance & Leasing Association (FLA) show that new business in the consumer used car finance market grew 9% by value and 2% by volume in June 2020 compared with the same month in 2019. In the first half of 2020, this market reported new business volumes 32% lower than in the same period in 2019.

The consumer new car finance market reported a fall in new business of 16% by value and 21% by volume in June 2020 compared with the same month in 2019. In the first half of 2020, new business volumes in this market fell by 42% compared with the same period in 2019. The percentage of private new car sales financed by FLA members held steady in the twelve months to June 2020 at 94.3%.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The consumer used car finance market led the recovery in June as showrooms began to re-open. Monthly new business volumes in this market were back to normal levels following the record low reported in April. The consumer new car finance market has taken a little longer to bounce back, but new car registrations figures suggest the market returned to growth in July.

“While the latest FLA figures are encouraging, the economic outlook remains highly uncertain. The motor finance market is faced with a prolonged period of significant demand for forbearance. To meet this and the pent-up demand for new credit, we continue to urge the Government and Bank of England to ensure that all lenders, including non-banks, have access to financial support schemes.”

Why it’s time to adapt to the virtual world: how to master online negotiations

Virtual negotiations are now the norm, but whilst we may all be familiar with sealing deals on Skype, how many of us are masters in communicating well online?

Here, Tony Hughes, CEO at Huthwaite International leading global provider of sales, negotiation and communication skills development, highlights the top five advantages of negotiating online and how to master this sort after skill.

1) Virtual negotiation interaction

Whilst you may feel you are already experienced in negotiation; these skills may not always translate to the online world. It’s important to practice your negotiation skills within a virtual environment now to futureproof your virtual negotiation style. Start by initiating internal negotiations and meetings virtually. Use this as an opportunity to test and assess skills sets, and where there may be breakdowns in communication. Having this valuable experience under your belt will allow you to identify any sticking points you need to overcome as a business, early on.

Something to consider from the offset if you begin virtual negotiations in the immediate future is to avoid a reference to “in the current crisis” and “bearing in mind the unprecedented times we are living through”. Nobody is unaware of the present circumstances. A lazy negotiator may use COVID-19 as cover to justify price positions or proposed contract terms when in reality, it might have no bearing one way or another. A skilled negotiator on the other hand will spot this, and it then morphs into another trap for the unwary: argument dilution. Be mindful of this in your approach.

2) Attend from anywhere

The beauty of virtual negotiations is that you can attend them from anywhere. Whether you’re in a different room, city or even country to those you’re negotiating with – it simply doesn’t matter. This makes them much more efficient, reliable and easier to organise and manage. However, this shift in functionality has a direct impact on the negotiation process. With less restrictions around timing and availability, be sure that you are entering the negotiations prepared. Don’t be pressured into negotiations until you are ready – this includes preparing and planning your responses around the objectives and fallbacks the other party have so you have a thorough understanding of what you both want to achieve from the process.

Of course, another real plus to the fact you can attend from home is that all the tools of the negotiator’s trade can be spread out on your desk (or kitchen table) for you to consult and annotate. That’s a liberty you could never take in to a face-to-face meeting. The things you want to see but you don’t want the other party to see are all there for you to use as you wish.

3) Reduced travel restrictions

Whilst great for cost saving on travel expenses, resource and availability, there are some drawbacks to virtual meetings. Now that meet ups can be arranged at the drop of a hat, it can leave you exposed to dirty tricks in negotiation. Issues such as calls being planned at the last minute and being sprung on you with little time to prepare, meetings being recorded, and not being able to fully gauge the mood of the room can be a real challenge. Try to counter act these negatives with a transparent, open and honest negotiation stance. If a meeting is being arranged, that provides you with little time to prepare, don’t be afraid of proposing an alternative time that better suits your needs. Likewise, if the room is hard to read, use proven negotiation techniques, such as testing understanding, to ensure you remain on the same page.

4) Practice new skills

The most important element of negotiating virtually is clear communication. Communication skills are often overlooked in sales and negotiation training – which can be a costly mistake. The way we deliver our proposals when negotiating virtually can make the difference between a good deal and a bad one. Be sure to avoid common irritators – these being words or phrases which have the potential to irritate through self-praise or condescension, lack any persuasive function and are used to describe a person’s own position or proposal. Examples are words such as: ‘fair’, ‘reasonable’, ‘generous’ etc. and a more recent one ‘due to the current situation’ These words may irritate, and shut down conversations that are essential to your negotiation. Working with an expert negotiator who can guide you to perfecting your virtual negotiating style will allow learning to be embedded throughout your team early on.

5) Increased productivity and efficiency

You may find that virtual negotiations are much more productive and efficient compared to face to face ones. Discussions may flow much better and messages can be shared more rapidly via video-conferencing. Because people are in the comfort of their own environment, you may also find that there is a more relaxed tone to conversations, which means that ultimately decisions can be made faster, projects are executed on time and productivity is increased. Also, if all parties are agreeable, the use of annotation and chat tools, and even the little red recording button, are good ways to banish post factum arguments about exactly what was said and agreed.

However, when in this environment, it is important not to be cagouled into a false sense of security. Apply the same level of caution to negotiations as you would ordinarily and utilise the extra time you may have to your advantage. This will ensure you can build rapport with the counter party, whilst maintaining professionalism and securing an advantage through utilising this extra time to conduct more in-depth negotiation preparation so you’re not caught off guard.

By Tony Hughes, CEO at Huthwaite International, a leading global provider of sales, negotiation and communication skills development

Venio launches nano credit lending app

Venio, the mobile application providing “nano-credit” facilities to consumers in emerging markets accessed via a smartphone, has begun offering easy-to-access credit facilities to unbanked consumers in its maiden emerging market, the Philippines.

Venio’s aim is to lift a generation of unbanked people into the financial system, help them to achieve financial discipline and a credit footprint in order to open up fair and equal access to useful financial services that wouldn’t otherwise be available to them. The need for these services has become more acute as COVID-19 has caused unprecedented impacts, increasing hardships and difficulties in accessing basic necessities.

Venio is the first “nano credit” service available on smartphones for emerging markets and in the Philippines market the service is taking the lead in meeting the strong demand for credit products and services among communities who have historically been underserved by traditional financial services. Within the first week of operations the Venio App saw 10,000 downloads. The initial rollout for the fast-growing app comes ahead of wider regional expansion plans for high growth emerging markets in Asia and Latin America.

According to the latest report from the World Bank Group, as many as 1.7bn adults are unbanked globally, a figure approaching one fourth of the global population, the majority of these cases are in emerging markets. In the Philippines alone 54m adults are unbanked which is over 81% of consumers in the country. The unbanked do not have access to essential financial products and services such as bank accounts to meet their needs. Moreover, they are unable to participate in the cashless economy and have no access to credit or financial support.

Venio represents a viable solution to address this global challenge. Receiving approval for Venio’s product does not require collateral and offers Venio users immediate access to small or “nano” loans starting at US$1 – US$5.00. In the Philippines one dollar can cover the cost of two kilos of rice, basic medicine and transportation to and from work for a week.

Venio’s easily accessible financing and redemption is available via an extensive network of local and national retailers and service providers operating across retail, grocery, healthcare, transportation, leisure, and entertainment. The Venio network includes several global and multiple local brands as well as thousands of the Philippines’ Sari-Sari convenience stores that have partnered with Venio to offer credit facilities to customers.

The app reimagines financial services for the unbanked and those outside of the traditional financial system by providing them with a credit history and a pathway to financial inclusion and support services such as credit. In this way Venio creates a positive social impact making a real difference in people’s everyday lives. Nano Credit can help users meet needs for emergency cash flow shortages, food, transportation, communication and home expenses.

The App’s underlying proprietary technology provides ease of use and efficiency in loan processing for consumers and merchants alike. The backend technology is sophisticated, scalable and proprietary.

Warren Platt, Founder & CEO at Venio commented: “Venio aims to revolutionize personal finance in emerging markets through a community grassroots approach facilitated by leading tech. The global payments industry is advancing at a fast pace, however, access to loans and other services has not been universal despite the strong demand. Venio is addressing this problem head-on and is bringing financial services to the unbanked in emerging markets where small loans are essential products for driving financial inclusion, which is critical for the vibrant growing economy of the Philippines and wider global markets. The Venio App has been designed to encourage responsible lending and borrowing and will allow customers to build their own credit history opening a gateway of financial services. In the post-Covid era financial inclusion must be ensured for the economic development of communities impacted by the pandemic.”

Diego Jose Ramos, Founding Director of the Philippine Association for Digital Commerce and Decentralized Industries and a Board Trustee of the Fintech Philippines Association said: “The health crisis is likely to exacerbate inequality as those already financially excluded have been disproportionately impacted. Fintechs such as Venio have a clear role to play in delivering financial inclusion and empowering more people economically, the journey begins with access to services and the start of a credit history, which in turn can open limitless possibilities for growth not just for individuals with access to financial services but the economies they participate in.”

June ONS Retail sales reveal full impact of UK Coronavirus pandemic

The latest ONS retail figures show growth for the first time since lockdown began at 13.9 per cent. Yet this presents a fraction of what is required to make sufficient inroads into the debt that retail businesses have built up during lockdown says RSM.

Despite continuing record spending on food sales, total retail sales in the quarter to June 2020 showed an overall decrease when compared to the comparative quarter from a year earlier of 12.7 per cent. Record spending continued online at 31.8 per cent despite much of the UK high street reopening in June.

Jacqui Baker, director of retail at RSM, said: ‘Ultimately, online spending is here to stay, and these statistics lay bare the fact that traditional UK bricks and mortar stores continue to bear the brunt of Covid-19.’

This week the firm called on Government to urgently consider extending the Corporate Insolvency and Governance Act by three months beyond the current deadline of 30 September to give the UK high street more time to bolster their debt funding and operating models.

Jacqui Baker comments: ‘Sales are heading in the right direction, but these increases are a fraction of where they need to be. 30 September is a critical date for retailers as it sees the end of the rent moratorium, Coronavirus Business Interruption Loan Scheme and the last embers of the furlough scheme. But it is the Corporate Insolvency and Governance Act that will determine the fate of these retailers. Extending it would give them much needed breathing space and prevent a swathe of CVAs from 1 October.

‘The all-important Christmas quarter will be crucial for these businesses and the Government will need to get behind them or risk the prospect of ghost-town highstreets in 2021.’

In week two of trading post lockdown, footfall was down -49.8 per cent year-on-year in the last week of June compared to 2019. It’s unsurprising then that June’s sales figures were predominantly driven by online at 31.8 per cent. By category, the picture for June is very similar to that of April and May.

Food and drink sales continue to perform strongly with an increase of 5.3 per cent since the start of the pandemic; household goods sales performed well as people continue to invest in home comforts and remote working with an increase of 1.9 per cent, with clothing and footwear continuing to struggle at -34.9 per cent down compared to February 2020.

Jacqui Baker adds: ‘ONS recently reported that total annual pay growth for March to May 2020 fell by 1.3 per cent, which will likely adversely impact income growth rates in FYE 2021. With less money in their pockets; online shopping becoming increasingly seamless; the transformational way in which we shop on the high street, and; mandatory face-covering in shops coming into force today, consumer confidence is likely to stay flat as the public adjusts to this new way of life.

‘With retailers neglected in the Chancellor’s summer budget, the Government must act now by extending assistance to retailers beyond 30 September, or else a blood bath is sure to ensue.’

FICO UK Credit Market Report Shows Sharp Fall in Spending and Monthly Payments

Global analytics software provider FICO today released its May 2020 analysis of UK card trends, which shows the impact of COVID-19 on the credit market.

FICO monitors the UK credit market using data reported by the UK’s leading credit card issuers, through its FICO® Benchmark Reporting Service. FICO’s analysis of May 2020 activity provides a clear picture of the impact of COVID-19.

“We have been tracking the impact of COVID-19 and lockdown since March,” explains Stacey West, principal consultant for FICO® Advisors. “We expect further significant impact into 2021, especially on delinquency rates, as payment holidays expire (over 960,000 cardholders), furlough contributions are reduced and then withdrawn (over nine million) and the expected increase in staff redundancies takes place, increasing the financial stress on UK adults”.

Spend on UK cards drops by over a quarter year-on-year

Average spending on UK credit cards dropped by 26.5 percent for the period January to May 2020 compared to the same period in 2019. And, whilst typically spend in May is lower than April when Easter and school holidays normally occur, the spend in May 2020 dropped more sharply – by 7.4 percent – illustrating the persistent financial pressure experienced by UK consumers as lockdown remained in place and millions stayed furloughed.

Card usage also drops year-on-year

Indications of financial caution were also seen through card usage, as the percentage of active accounts decreased at a faster rate than normal. Utilisation on active accounts also fell and was at over a two-year low.

However, during May there was no sign of card limit decreases and average limits continued to slowly grow, reaching their highest levels since 2002, and noticeably higher than in April 2008 during the last financial crisis. There is concern that some consumers will turn to the unused credit on their cards to help finance themselves over the coming months, with over £90 billion available, there is scope for large balance builds.

West adds: “As spending options increase with the re-opening of many non-essential shops, and the hospitality and travel sectors, we expect many consumers to start using their card more as their confidence grows. This is combined with the consumers whose credit card is — or becomes — the only available source of spend”.

Accounts in credit

The percentage of accounts in credit (have excess funds) and the average amount in credit continued to increase. Normally the percentage of accounts in credit would decrease in May and the average amount would marginally increase. However, 6.6 percent of accounts stayed in credit and the average amount rose by 18.3 percent in May 2020. The main driver of this is the refunds to cards for items such as holiday expenses, which have been cancelled due to COVID-19.

West adds: “We expect this trend to continue over the next couple of months as the refunds from cancelled summer holidays are slowly processed. Later in the year we expect to see normal levels resume”.

Accounts over their limit drop

The percentage of overlimit accounts was 36.5 percent lower than a year ago. Although there may be consumers going overlimit with interest as they defer payments or accounts that would previously have qualified for a card limit increase, this is being outweighed by a combination of issuers restricting the spend above limit, consumer caution and the average spend decreasing.

However, the average amount overlimit continues to grow and has increased by 19.5 percent since January.

West adds: “Over the coming months, if the number of consumers deferring their payments remains stable or increases, more will exceed their limit. This also means a higher proportion of accounts will qualify for persistent debt treatment”.

Monthly payments experience sharp fall

The percentage of payments to balance experienced its sharpest fall yet, reaching over a two-year low in May. An increase in payment deferrals, lower payments (perhaps due to lower balances) and missed payments may all have contributed to a 16.6 percent drop compared to May 2019.

The percentage of consumers paying less than the amount due has also risen. From January to May 2020, the percentage increased 25.1 percent, compared to a marginal decrease of 0.2 percent for the same period in 2019. And the percentage of consumers paying the amount due was 7.7 percent lower than a year ago, despite increasing 18.5 percent in May compared to April.

“In Q4, we should start to see the true picture of the financial impact on consumers’ ability to continue or resume their payments, with many potentially paying a lower monthly amount”, predicts Stacey West.

New account openings fall

Perhaps the starkest illustration of the impact of COVID-19, as well as a demonstration of lenders tightening policy rules, was the percentage of new accounts (compared to total accounts) opened in May. This was 53.3 percent lower than a year ago; new account openings January vs. May was also 45.1 percent lower compared to a 27% increase in the same period in 2019.

West concludes: “We anticipate it will take several months to revert to the previous levels of new credit card bookings, as there will still be caution in the market in offering credit to new customers, intensified by the uncertainly around predicting customers’ ability to sustain their debt levels”.

Finance is the UK’s third most confident sector amid Covid-19

The current pandemic has thrown drastic obstacles in the way for UK businesses. With the finance sector having a total business confidence score of 104.68 out of a total of 190, these figures show just how uncertain businesses feel at present – according to a new, Business Confidence Report by Nexus Global.

Nexus Global surveyed senior managers in businesses across the UK to determine how confident they feel at present regarding the current economic climate. According to the findings, financial businesses are most assured about business competition yet least assured about giving bonuses to employees.

To determine the figures, senior managers in the finance sector were asked (on a scale of 1-10) how confident they feel at present regarding the following aspects:

The finance sector is the third most confident in the UK

Scoring 104.68 overall, finance is the third most confident sector after law and science and pharmaceuticals, in the business confidence report.

The industry is most confident about business competition, the overall health of their company, and business growth.

In fact, one area in the sector that has been faring well during the current climate is fintech (1), these companies are used to remote working conditions, and a high digital demand. With many of these firms currently offering businesses and consumers their products or services for free or creating new products that solve specific current needs; they should continue to thrive when the economy recovers.

However, confidence levels are lower when it comes to giving bonuses to employees, hiring new members of staff, and increasing wages across the business. This isn’t surprising, given the effect COVID-19 has had on the sector. Margins will be squeezed even further – specifically in banking – with payment holidays being granted and potential borrowers defaulting on loans.

Please see the table below to see where the finance sector ranked compared to other sectors:

Commenting on the report findings, John Westwood, Managing Director, says: “It is by no surprise to see business confidence at a low during such an unsettling and turbulent period, during which the UK economy has suffered its worst-ever decline.

Looking forward, business confidence levels will be a key factor to influence the pace of consumer spending once lock-down measures continue to ease. This change in behaviour will need to see businesses adapt if they stand a chance of seeing growth.”

The UK’s Best Credit Score Hotspots Revealed

The south is home to eight of the top ten areas with the highest credit scores in the country according to new analysis by Share to Buy.

Using the latest data from two major credit agencies, Share to Buy have mapped out the UK’s average credit scores by county showing where the country’s best scorers live, and who currently tops the national average of 570.

According to Google search data, interest around loans peaked between March and June 2020, with the phrase ‘can I get a loan’ rose by 11% compared to the same period last year, while the phrase ‘how to improve credit score’ was up by almost 27% since 2019.

Top Five: Highest Credit Scores in the Country

Oxfordshire has the highest average credit score in the country, over two and a half times the national average of 570 and 154 points higher than Nottinghamshire, the area with the lowest credit scores in the UK.

Highest Credit Score Areas Total Score out of a possible 1699
1 Oxfordshire 1258
2 Surrey 1255
3 Dorset 1239
4 Hampshire 1236
5 Berkshire 1236

 

Bottom Five: Lowest Credit Scores in the UK

All counties analysed have higher credit scores than the national average, but some areas in the UK lag behind their neighbours.

  Lowest Credit Score Areas Total Score out of a possible 1699
1 Nottinghamshire 1104
2 County Durham 1112
3 Leicestershire 1117
4 Yorkshire 1119
5 Lancashire 1132

What Impacts a Credit Score Positively

Several factors can impact credit scores throughout our lives. Registering to vote is an excellent place to start, as most credit scoring companies use this to help confirm your identity and address. Three ways to impact your Score positively include:

  1. Set up direct debits where possible: Consistent, regular payments look good on your profile, so try to set up direct debits for as many payments as you can to ensure you pay on time and in full regularly.
  2. Maintain older accounts: The average age of your bank account is taken into consideration by credit scorers, so try to stick to one account that can be well managed over the long-term.
  3. Don’t borrow more than you can afford: Always ensure you can meet minimum repayments easily, and pay off accounts sooner if you can. This shows you can manage within your set limits.

What Impacts a Credit Score Negatively

Credit scorers look for certain red flags when assessing your eligibility. Here are a few things you should try to avoid:

  1. Missing payments: If this happens regularly, you could have a potential default flagged on your profile, and this can stick around for up to six years.
  2. Lending beyond your means: Borrowing more than you can afford means sticking with repayments will be tricky, and when debt piles up, it can quickly become unmanageable. If you get a debt relief order or apply for bankruptcy, your credit score will be significantly impacted.
  3. Regularly applying for credit: Each time you apply for credit, lenders will perform a ‘hard’ search on your credit history, and this is logged on your profile. If too many of these are logged, it could become a possible red flag.

Commenting on their average credit score analysis, Nick Lieb, Head of Operations at Share to Buy says: “Many people have been asking us what constitutes a good credit score when trying to buy a home. The topic is more relevant than ever right now as we navigate our way through the uncertainty of the last few months, but with so many variables, and credit score companies all calculating scores differently, it’s not an easy question to answer.

We have combined data from two of the biggest agencies for our credit score review, and while it’s interesting to see the variation in numbers, average credit score is just one of several factors that play a part in your ability to get a mortgage. Therefore, even if your credit score is not where you want it to be, this shouldn’t be a deterrent in your search for a home.”

Shaping the UK’s future prosperity: recognising the opportunities for recovery

The Finance & Leasing Association has today published its recovery plan for the economy – Shaping the UK’s future prosperity: recognising the opportunities for recovery – which recommends a phased approach of short, medium and long-term measures that will ultimately position the UK to meet the Government’s key objectives of achieving a net-zero, low carbon economy by 2050, enhancing economic productivity, and creating a diverse and inclusive prosperity by levelling up the regional economies of the UK.

The short-term imperative is to rebuild consumer and business confidence, and that begins with ensuring that lenders are in a position to lend during the recovery. Over the last three months, so much assistance has been provided to customers in the form of payment deferrals that the availability of new lending to help fund the recovery will be severely curtailed – especially in the case of non-bank lenders which have been supporting customers from their own reserves. The FLA therefore proposes:

  • An HM Treasury Forbearance Liquidity Support Scheme to offer funding to lenders to deliver the liquidity they need to help to their customers.
  • An extension of the Government guarantees for business and consumer lending until Spring 2021.
  • Reform of the British Business Investment (BBI) Direct Lending Scheme so that it works for a wider range of specialist funders of SMEs and consumers who do not have access to Bank of England support. This would greatly increase the availability of funding to SMEs and the lenders who provide point of sale credit to High Street shops.

The medium-term focus must unlock investment for core economic growth, so the FLA proposes:

  • The reintroduction of the Annual Investment Allowance’s previous £1 million limit, with no taper, would support businesses growth across the UK. The acquisition of new equipment would also enhance productivity and accelerate the move to more energy efficient assets.

The long-term priority must be to improve our regulatory regime so that it can provide protection in times of crisis, rather than act as an obstacle to quick and effective solutions for customers in financial difficulty. The FLA therefore proposes:

  • An overhaul of consumer regulation – specifically the Consumer Credit Act – to make it fit for purpose in the digital age, and to allow for the innovation of new finance products. This is particularly important to aid the transition to electric and low emission vehicles.

Commenting on the recovery plan, Stephen Haddrill, Director General of the FLA, said: “The Chancellor’s Economic Statement set out a range of short-term stimuli, but these measures need to be consolidated with substantive plans for long-term growth – and all of this must start with ensuring that the UK’s providers of business and consumer finance are in a position to lend.

“This is not the case at the moment and without their input, the recovery on High Streets and Industrial Estates will stall.

“We have set out a credible plan that puts the UK on a path to a more sustainable and prosperous future. This is the point when businesses will be planning their next move in terms of investing in new equipment to make them more agile – the Government needs to ensure that funders are in a position to support these ambitions, and that consumer finance lenders are in a position to support the demand for goods.”

Slower than expected GDP growth: CEO reaction, what does speed of recovery depend on?

In light of new stats from ONS on the economic impact of coronavirus for May, Andrew Duncan, Partner and UK CEO, Infosys Consulting, said: “This is undoubtedly a challenging environment for businesses. While some economists were anticipating a V-shaped economic recovery, we haven’t yet seen the rapid snap back of growth that we hoped would follow the steep downturn.

“However, following the relaxation of government restrictions this month, we can expect stronger consumer spend in a number of sectors, particularly hospitality, retail and tourism. The speed of recovery will depend on whether people are ready to embrace life as it was before coronavirus. I hope that we will start to see positive momentum within the next few months, and a significant rebound in 2021.

“Even so, the infrastructure underpinning the economy will undoubtedly remain fragile for a long time, and confidence moving forward will be linked to the course of the pandemic. We may see a surge in unemployment following the change in the government’s furlough scheme, and as businesses take time to replace jobs that were cut as a result of the crisis.

“There is also the ever-present uncertainty around the EU trade relationship, with the UK government insisting that it will not extend the Brexit transition beyond 2021. This means an economically disruptive ‘cliff-edge’ outcome of a no-deal Brexit still remains possible. Such an outcome will significantly extend the post-crisis recovery in GDP growth that we were hoping for in 2021 and beyond.

“To drive productivity growth, we are likely going to see a major shift in jobs, with a heavy dependence on technologies and skills that can help businesses do more with less. We’ll certainly see big companies, especially in industries not so hard hit, increase their investments into the likes of AI, automation, and cloud technologies – where they can eliminate the costs of legacy operations and drive operational efficiencies at scale.”

How can lenders leverage open banking data to tackle Covid-19 pandemic challenges

We have seen extraordinary levels of Government-backed support made available to the public and businesses alike in responding to the health crisis by our banks through payment holidays, grants and the furlough scheme. While we keep collective fingers crossed that the economy bounces back quickly, the consequences of loan payment freezes, mortgage payment holidays and business interruption loans will no doubt last for years.

As recent Bank of England figures indicate, many customers have opted to take a payment holiday during lockdown. The challenge for lenders will be to predict who will come out of the freeze without difficulty, and who will remain in the cold.

Understanding customer behaviour during the crisis is an unenviable task. From identifying consumers who used a payment holiday due to real financial difficulty to consumers who used them as a tool for clever management of personal finances has been pretty much impossible for lenders. Hands up any homeowners who froze mortgage payments to repay credit card balances?

Add to this the challenge of working out which consumers have been furloughed and likely to return to work or conversely who is facing the possibility of redundancy, and you would think that lenders are attempting little more than a crystal ball gazing exercise. It’s just one of the many factors contributing to the contraction of personal lending volumes over the past few months. However, there is hope. And as usual, in our darkest hours, we can look to technology and data to help save the day.

Open Banking data to the rescue

Open Banking presents itself as a very real remedy to help understand a prospective borrower’s financial position and in a world of uncertainty, it shows better indicators of their current and future affordability. The ability to analyse a customer’s entire transaction history is not just a benefit for responsible lenders, it presents more visibility and accountability to the consumer and helps prevent consumers from taking on more debt than they can afford.

Income and affordability checks can be completed down to a penny based on real-time data, furloughed applicants can be identified, and payment holidays spotted. Open Banking data has the potential to give a here and now view for lenders that is different to credit bureau data at a time when it’s needed most, benefitting both lenders and consumers alike.

With no effective way other than antiquated manual labour to check for payment freezes or furloughed status, it’s not surprising that many lenders are working hard on integrating Open Banking data into their platforms and customer journeys to get this real-time view they so desperately need.

But will consumers consent?

This shift towards Open Banking means being able to analyse more relevant data from consumers prior to making a lending decision, but none of this can happen without the consent of the consumer who hold all the power in this relationship. If consumers don’t feel comfortable sharing their data then lenders won’t get their hands on the data they so desperately want.

Here at Monevo, as a platform that powers the personal loan comparison and marketplaces behind some of the world’s most well-known consumer-facing brands and fintechs, we’re very aware of the potential benefits of Open Banking. In fact, we are soon to release our own Open Banking journey and integration options at various touch points during the loan application process. While we are excited about the opportunity, in many ways the release represents a step into uncharted territory in terms of consent rates. How many consumers will opt in, or opt out, is an unknown at the moment, but undeniably there is a great opportunity to improve outcomes for all involved if they choose to share their data.

Understanding the data

Assuming lenders do get access to the data, it’s not a silver bullet. The depth of Open Banking categorisation data throws up new challenges for those in credit risk in these strange times. For example, grocery shopping is historically a constant spend (as opposed to discretionary), so lenders normally count 100% of groceries in assessing affordability. But under lockdown, consumer discretionary spending has moved around and, in some cases, to merchants that are classified under grocery shopping. Pounds normally spent at pubs and restaurants would previously not class as essential cost but have been spent online at Tesco or Amazon during lockdown.

The hospitality industry’s pain has been the supermarkets gain here, but it changes how affordability assessments need to be looked at. Another challenge is the treatment of those with gambling spend, which, for many, has gone up during lockdown. This is a veritable Pandora’s box in determining what spending levels constitute risk for lenders and consumers that are looking for credit. Normalising these changes in behaviour and interpreting them in the context of credit risk will not be straight forward.

Welcome to the future

Although a rethink of conventional rules will be required, what is certain is that the appetite to lend remains. In addition, as a sector we have never had more tools available to us to try and crack the enigma code of Covid-19. By utilising these tools effectively, we can return to better times with what we hope will be an even more robust personal credit ecosystem that serves and protects consumers well.

Will Hurst, Head of Commercial Development at Monevo