Lenders face a major challenge in 2023. In July, the Consumer Duty comes into effect, requiring firms to avoid “foreseeable harm” and deliver better customer outcomes. Lenders that cannot carry out fast, accurate affordability checks will not only jeopardise the financial health of vulnerable people, they will put the health of their own business at risk.

The Consumer Duty obliges firms to build a more multi-faceted picture of customers than was previously required – or even possible. Traditional approaches to credit scoring and affordability checking simply cannot provide the customer insight needed to comply with the Duty.

The solution lies in Open Banking and Open Finance, which enables a data-driven approach that extends existing approaches to affordability far beyond backwards-looking credit scoring and provides a new lens to view vulnerability, resilience, suitability and eligibility.

It’s no wonder that Open Banking tools that enable fast and accurate affordability checks are set to take off. By drawing on diverse and up-to-date data, lenders can have the best possible conversations with borrowers and avoid foreseeable harm and poor customer outcomes. Firms that embed Open Finance within their affordability assessments will not only achieve compliance but be able to benefit from the many opportunities created by this new paradigm in financial services.

Compliance and the Consumer Duty

The Consumer Duty is much, much more than just a tick box project from the FCA. It is one of the most significant shifts in UK financial services for many years and raises the bar for firms, which must collect enough information to understand customers’ financial context and act to avoid “foreseeable harm”.

When the FCA identifies serious misconduct that breaches the rules, it will use a “full range of powers” to “secure redress for consumers”, including fines and even removing permissions, Sheldon Mills, an FCA Executive Director, said in July 2022. Boards and senior managers will be “held to account for delivering these outcomes,” he added.

The Consumer Duty has teeth. It presents a wide range of challenges and demands, but an even wider range of opportunities. There is huge potential value in truly understanding and responding to customers’ needs. The Duty should be embraced as an opportunity to drive business growth, improve consumer satisfaction and reduce business risk.

It is no longer enough for firms to claim they don’t have the information they need to prevent, reduce, or manage arrears effectively. It has never been easier for a customer to connect a lender easily and securely to their financial world using Open Banking so that a holistic, accurate, timely, forward-looking assessment of income, expenditure and affordability can be achieved. If firms have not yet implemented Open Banking – now is the time to do it. It’s hard to see how they could become compliant without it.

Hard Times

Unfortunately, compliance with the Duty is not the only challenge facing firms. It has been a truly bleak winter for millions of retail banking customers – which means it is also likely to be a busy time for lenders. In the Autumn of 2022, the FCA warned that 7.8 million people in Britain were “finding it a heavy burden to keep up with their bills”, an increase of around 2.5 million people since 2020. In January 2023, the ONS report revealed a 17% increase in the price of food, one of the highest levels in 40 years prompting many to switch to supermarkets that focus on value, including Aldi and Lidl. According to Moneyhub, Aldi and Lidl have seen an increase in the number of shoppers by 19% and 17% in January 2023 vs January 2022. While supermarkets such as Morrisons and Waitrose have seen decreases of 10% and 17% respectively. Citizens Advice warned that half of its debt assessment clients are left in the red after paying for essentials.

The rising cost of living is also eroding the savings capacity for UK adults. In March 2022 someone with a net income of £31K a year would’ve been able to save £232 or 9% of their income, however, someone on the same wage in January is likely to only have the capacity to save £51, or just 2% of their income.

And the data shows that savings are even smaller for those on a lower income of £24K who would now have almost no capacity to save. Instead, they like many consumers will have turned to credit to get through the winter. Those struggling to make payments will be looking to lenders for support. Too many firms are ill-equipped to address this challenge because they lack the ability to carry out accurate affordability checks which reveal a customer’s true financial context.

Two reports issued by the FCA in November indicated that the industry was simply not prepared for a surge in demand. The MS19/1: Credit Information Market Study Interim Report and Discussion Paper focused on the data lenders draw from credit reference agencies. It found “significant differences in the credit information held on individuals across the three large CRAs” and warned that “market failures and inherent difficulties in matching new credit information can lead to poor outcomes, including the oversupply of credit to individuals whose credit risk is understated, and limiting access to credit for individuals whose credit risk is overstated”. Between 5 million and 7 million UK Britons are now at risk of financial exclusion due to limitations in the information that is used to make decisions about them.

A second FCA report called Borrowers in Financial Difficulty following the Coronavirus pandemic – Key Findings said that “firms need to do much better”. It assessed 65 lenders and asked 32 to make “material and significant changes to their processes” and pay more than £12 million pounds in remediation to roughly 60,000 customers. Firms face the difficult but unavoidable job of complying with the Duty at the same time as serving customers in a challenging business environment.

A Consumer Duty Case Study

To get a sense of what can go wrong if firms do not switch to Open Banking, think of a consumer credit firm that has designed a lending product, with late payment fees for a target market that includes consumers with low levels of financial resilience. If the firm finds that a large proportion of its customers are not making payments on time and are paying substantial late payment fees, it may be forced to withdraw the product in order to review customer outcomes. The product is simply not meeting the needs of its target market, who are paying far higher fees than anticipated and facing unaffordable borrowing rates.

If this firm had used an Open Banking platform with connected accounts, they would have been able to see which customers were likely to struggle to make payments based on their cash flow records. Using Open Banking data, firms can model customer outcomes before they are financially harmed by the design and distribution of inappropriate products. Without this data, the firm can only spot the problems a product will cause post-launch, by then the damage is already done.

Open affordability

To comply with the Duty, firms must understand and demonstrate affordability throughout a product’s lifecycle – not just at the point of sale. Open Banking and Open Finance data can be combined with businesses’ existing customer data to provide a holistic picture needed to ensure compliance.

Real-time transactional data points relating to banking, pensions, loans, investments, mortgages and savings products can now be gathered, analysed and modelled throughout the lifetime of a customer relationship. This not only conveniently and cost-effectively addresses affordability, but can help firms solve problems around vulnerability, capability, and suitability.

When firms enable their customers to grant explicit permission to Open Banking-powered affordability checking, they gain access to a holistic view of financial well-being. They can see applicants’ capacity to afford loans, a mortgage, or other credit agreements.

Moneyhub’s Open Banking-powered Affordability Dashboard delivers the benefits unlocked by access to real-time data. It can be up and running in contact centres within weeks, giving firms the ability to demonstrate improved customer outcomes and be ready to comply with Consumer Duty in July.

The Consumer Duty will fundamentally change the lending landscape. Firms that embrace Open Finance will be well-placed to deliver better outcomes for their customers and business. We expect the new rules to be a milestone in the development of Open Finance and expect to see genuine benefits to financial health and wellness of consumers across the nation.

By Dan Scholey, Chief Operating Officer (COO) – Moneyhub

Businesses are being told to switch to VoIP telecoms systems to support the growing demand for flexible working patterns or risk losing key staff.

While many businesses do want their staff back in the office, the growing compromise is to offer flexibility using hybrid working, allowing staff to choose a day or two that they work from home.

Coherent discussions are the key to hybrid working and moving to a unified model with VoIP allows multi-site location communication to be seamless and ensure office and home workers keep talking.

It can also save businesses money compared to their current telephone system, so VoIP helps to keep key staff happy and save money at the same time.

Experts from VoIP specialists TelephoneSystems.Cloud are warning businesses to install the internet based service before the old system switches off.

VoIP systems offer employees the flexibility to work from anywhere with a reliable internet connection, and link up their other work devices. It’s so easy to transfer calls between staff seamlessly, wherever they are.

The latest data shows that prior to the pandemic just 12% of adults worked from home at some point over a typical week.

This figure rose dramatically during the pandemic and the new norm now sees 30% of employees working from home at least one day a week.

With the number of employees embracing hybrid working options on the rise, it is increasingly incumbent on businesses to provide communications solutions that support their needs.

Making the switch from traditional analogue landline systems to VoIP phones means further supporting employees who work a mix of away from, and in, the office.

Switching to VoIP systems allows workers to use the same physical device with the same number for business related calls wherever they are working from.

The system also allows employees to use the same number on their other devices – something which is impossible to do through analogue landlines.

Once a VoIP system is in place, the same telephone number can be connected to smartphones, laptops, tablets and desktop computers; wherever there is a reliable internet connection.

VoIP systems also allow users to download an app to turn a regular mobile phone into one which is compatible with their work internet telecoms system – this is ideal for smaller businesses who have a ‘bring your own phone’ policy.

The ability to separate work from home life on employee personal devices is an important challenge that businesses across all industries are facing up to post-pandemic.

So long as there is a reliable internet connection, the flexibility of VoIP systems supports the UK move towards hybrid working.

And there are benefits for businesses too – VoIP systems incur relatively low set up costs, with businesses benefitting from lower call charges, especially when compared to mobile phones.

While businesses which operate internationally benefit from lower international call charges and no expensive contract premiums.

Many VoIP phones are compatible with business tools such as CRM’s and click to dial – these small details make admin much easier and allow for smoother business operations.

Businesses are being urged to make this ‘big switch’ over to VoIP systems now and move away from the old analogue telephone style.

The government and telecoms industry plan to shut down analogue phone systems by 2025, meaning there are just two years left until these lines stop working.

Juliet Moran, founder of TelephoneSystems.Cloud said: “VoIP systems are the best way forward for businesses right now – with the old analogue telephone system being shut down in just two years time, now is the time to make the so-called ‘big switch’.

“This cloud based phone system does have a lot of benefits for your employees, with the UK seeing a massive growth in hybrid working post-pandemic, VoIP systems fully support these flexible working patterns.

“Employees can take the physical device with them wherever they are working so long as there is a reliable internet connection. Better still the VoIP system allows you to use other devices such as laptops and tablets to use the phone system under the same telephone number.

“With little investment required and low fees for international calls, we’re encouraging all businesses to look into installing VoIP systems.”

Governments enacted substantial services trade liberalisation in 2022, underpinned by actions to improve business operations in domestic markets, advance regulatory transparency and ease remaining hurdles on business travel after the COVID-19 pandemic.

The global regulatory environment for services trade was dynamic with an increase in the volume of regulatory changes compared to 2021, reflecting countries’ continued efforts to address various global economic challenges.

Positive developments were counter-balanced, however, by a range of new services trade barriers, including on foreign companies’ ability to provide services locally, limitations on the movement of people and increased control on foreign investments, according to new analysis from the OECD.

OECD Services Trade Restrictiveness Index: Policy trends up to 2023 shows an increase in the adoption of new barriers to services trade across the 22 major sectors covered. The average increase in new services trade measures was five times higher in 2022 than the year before, with all sectors except telecommunications services showing an increase.

The annual report, which covers services trade regulations in 50 countries, representing more than 80% of global services trade, shows that Japan, the United Kingdom and the Netherlands displayed the lowest regulatory barriers to services trade in 2022.Economies with the highest services trade liberalisation in 2022 were Viet Nam, Japan and Kazakhstan.

Distribution services, sound recording, and architecture services were the most liberal service sectors in 2022, while air transport services, legal services, and accounting and auditing services were the most restrictive sectors, on average, across countries studied.

“Continued efforts to remove barriers to trade in services are essential to facilitate a strong and sustained economic recovery to strengthen resilience to future shocks and promote a more sustainable trading system,” OECD Secretary-General Mathias Cormann said. “To ensure that the benefits of open markets and a rules-based international trading system are preserved, policy makers should focus on minimising barriers that increase trade costs for services providers, weaken the gains from digital transformation and undermine competitiveness.”

The report shows that the average level of restriction in non-OECD countries across the 22 sectors is 1.5 times higher than in OECD countries in 2022, indicating continued regulatory fragmentation and uneven conditions for services market access.

Insights from the STRI demonstrate that ambitious efforts to ease barriers to trade in services could substantially reduce trade costs for firms that provide services across borders. In a hypothetical scenario where countries reduce their STRI index by half compared to the best performer in each sector, benefits accrue across all countries, with reduced trading costs most prominent in emerging market economies.

Before the pandemic, one in eight working adults worked from home. During the pandemic it peaked at 49% and during 2022 it fluctuated between 25% and 40%. Between September last year and January 2023, 16% worked from home, and 28% worked on a hybrid pattern.

Parents, older people, higher earners and self-employed people were more use hybrid work or work from home. 16% of men and 17% of women work entirely from home, and 27% and 29% use hybrid working.

The ONS has released details of who is home or hybrid working: Characteristics of homeworkers, Great Britain: September 2022 to January 2023 – Office for National Statistics (ons.gov.uk)

Sarah Coles, head of personal finance, Hargreaves Lansdown said: “Hybrid working has hit home among older people and parents. Fitting work around our lives and not the other way around could be one key to solving labour shortages, and earnings disparities between parents. Those with children at home find it easier to juggle their responsibilities when they can work from home at least part of the time, while older people may be more convinced to stay in work if they don’t have to schlep halfway across a city in order to do so.

“The ONS statistics have showed that while homeworking is nowhere near the peak it hit during the pandemic, home and hybrid working patterns have hung around long after restrictions were lifted. Those with the ability to work from home, and seniority to insist on it, are far more likely to have adopted new working patterns. It’s one reason why almost one in three self-employed people say they work entirely from home.

“This is the solution for an awful lot of working parents, 31% of whom work in a hybrid pattern – compared to 26% of those without dependent children. The age of the child has little impact. This isn’t a shock, because parents won’t be working with toddlers in tow, wherever they’re based, it just makes childcare much easier to manage. Those with older children, meanwhile, have the ability to manage care before and after school much more effectivelywhen they are at home – and are more able to react to a change in plans.

“The gender pay gap doesn’t open up at the age when people have their first child: it often does so a few years later. This may be because women are more likely to compromise their working hours or location in order to provide care – especially when they have more than one child. The growth of hybrid and home working – and especially the fact that men and women are equally likely to adopt it, could be essential in allowing families to provide care for their children without enormously compromising the ability of either parent to progress in their career.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown said: “The emergence of home and hybrid working could be a game changer for older people who want to remain in work, but don’t want to devote so much of their time to commuting and office politics. Many older workers are also providing care for other family members and need flexibility over how and where they work. The government is assessing the most effective ways to encourage people over the age of 50 back into work, and support for these kinds of working patterns is an essential component in that plan. There’s a huge opportunity to make returning to work much more attractive for older people by enabling them to fit it into their lives in a way that works for them.”

Stuck at work

Sarah Coles said: “However, there remain an awful lot of people for whom flexible working is beyond the realms of possibility. Younger people are still packing out buses across the UK. Some 79% of those aged 16-24 travelled to work. And while some employment experts have argued that this is essential for training and socialising, it’s not the main reason they travel to work: 65% of them said they couldn’t work from home – making this the most common age group with no choice.

“Lower earners are also likely to have to go into work. Among those earning up to £10,000, 75% travelled to work and couldn’t work from home – compared to those earning £50,000 or more where 80% worked from home or hybrid. Those in professional occupations were most likely to work from home at least some of the time, and those in elementary occupations were least able to. Only 1% of carers worked from home (plus 3% hybrid), 4% of people in leisure and other service occupations (10% hybrid) and  5% of process, plant and machine operatives (5% hybrid).

“Lack of choice plays a major role: 46% of those who travelled to work every day said they couldn’t work from home, and only 10% said they could work from home but chose to travel in.

“Some of it is influenced by the commute – particularly in London where commutes are far longer on average. 40% in the capital said they used hybrid working.”

Credit card application fraud rose to its highest-ever recorded level in 2022, new analysis from Experian reveals.

Credit card application fraud rose by 18% in the last quarter of 2022*, with fraudsters looking to take advantage of people’s Personally Identifiable Information (PII) and take out credit and borrowing in their name.

The rise means the overall fraud rate for 2022 was the highest yearly rate recorded by Experian in the last 10 years, indicating the scale of the problem for both consumers and financial services firms looking to identify and prevent fraudulent activity.

When looking at loans, fraud in this space has more than doubled over the last two years, with the fraud rate in Q4 among the highest seen in the last three years.

First-party fraud – where an individual gives false information or misrepresents their identity to access a product on more favourable terms, with no intention of paying it back – now accounts for 27% of all applications.

The figures suggest that households were looking to obtain additional borrowing over the Christmas period in order to cover costs.

Eduardo Castro, Managing Director of Identity and Fraud, Experian UK&I, said: “Our latest figures show the scale of the fraud epidemic facing consumers and financial services companies.

“The rise in first party fraud is also striking, as it suggests that households are misrepresenting their financial situation to meet additional costs, or even cover everyday expenditure.

“It’s an ongoing, evolving battle, with fraudsters always looking at new ways to dupe victims. However, lenders are deploying new technology to help them identify potentially fraudulent activity as early as possible, preventing it, and minimising losses to both them and their customers.”