‘A ticking time bomb’

As economic indicators falter, the UK is facing a significant rise in debt, and the collections industry needs to react with the best technology

James O’Hare, Managing director, Link UK

Inflation is now at a 13 year high in the UK and is expected to rise above 10% by the end of the year. Some commentators have said that the latest intervention on interest rates by the Bank of England could put a detrimental squeeze on household bills that lasts for years not months.

Evidence this will be the case is mounting. In April, chief executives from four of the big six energy firms told a Business Energy and Industry Strategy (BEIS) committee they expect 30%-40% of people will be in fuel poverty by October; EDF has already seen a 40% rise in customer calls from people worried about debt.

History books tell us that the burden of managing and collecting debt falls to the financial services sector. It seems inevitable that it will once again have to manage the pressure of dealing with vulnerable households unless more is done to intervene and reverse the current trajectory of energy prices and food costs.

The situation is distressing, and not limited to just the energy crisis. It is further fuelled by changing consumer habits such as an increased readiness to use the latest in ‘buy now pay later’ models.

These make it easy to spread payments with the click of a button at the check-out; consumers often take up the offer without really thinking through the long-term consequences on their budget.

Understanding the ticking time bomb, the financial services industry is starting to plan how it will manage and collect debt on behalf of brands, while also remaining sensitive to the situation people will find themselves in.

At the heart of the debate, especially in this unprecedented scenario, is the question of ethics.

For some time, thanks to the work of groups like the Citizens Advice Bureau and mental-health charities, there has been a recognition at government level, that some people get into difficulties, often through no fault of their own. In response, the government has turned its attention to fairer and more ethical debt collection approaches.

Most recently it ran a call for evidence consultation ‘Fairness in government debt management’, recognising that covid-19 would bring new dynamics to debt collection.

This followed new rules for enforcement agents in 2014; guidance for fairer government debt practice in 2017, and a ‘Breathing Space’ scheme in 2021, providing more time for people in difficulties to resolve their debt situation.

Notable examples of policy in action include Hammersmith and Fulham council, which has led the way on ethical practices in a bid to not only bring a human empathetic side to addressing debt, but also avoid the costly process of court proceedings.

It takes the view that it should help people avoid debt first, and then help people who are behind on payments in a way that is not stressful. Within two years of the programme launch, it had already raised £798,000 in income it would have usually written off or spent taking people to court.

Bringing such structure to ethical practices, is now being replicated by the Financial Conduct Authority, in the form of its 2021 guidance on the expectation of the fair treatment of vulnerable customers. At the time of launch, it said that around 2.7 million people show “characteristics of vulnerability, including poor health, experience of negative life events, low financial resilience and low capability”.

Helped by technology, brands are not only using tech to analyse who in their customer base could fall into these categories, but also communicate with them in a more empathetic human way.

For example, a large European Banking and Insurance provider we have worked with has reviewed the type of communication it sends to people to remind them a loan repayment is due, and also the tone of voice used. It found that switching from email to a more friendly SMS increased payment rates by 10%, as people were more likely to open and act upon the message by following a link to pay or request help with payment schedules.

This example demonstrates the value of well-designed customer experience (CX). Where ethics and a personable tone of voice are built into business-as-usual CX processes, customers can be guided through interactions, and feel supported. There is also a value to brand equity; UK Customer Satisfaction Index shows that 60% of consumers will choose a brand on ethical grounds.

So, what best practices models are emerging today? There are five elements driving strategy:

  • Providing an omnichannel offering is becoming the go-to model, because brands can engage with customers using messaging services that are used every day – like SMS, Messenger or WhatsApp – alongside more traditional digital tools like email.
  • Chat bots, which encourage two-way conversations, are being used to automate the most frequent interactions. Integrated into these processes, is the ability to elegantly hand off to a trained, empathetic customer service professional, to manage both high value and high-risk interactions.
  • Some companies have identified that a review of the tone of voice is not enough. They have made significant cultural changes too and adapted recruitment policies to find people who are empathetic, supported by appropriate training models.
  • Finding the right collections partner is also important. An expert that can use technology and follows an ethical and flexible payment strategy is becoming an essential part of the debt collection model.
  • The best companies are going one step further and using a review of ethical practices as an opportunity to look at other operational pinch points. Such as reducing friction between anti-fraud measures and delivering a seamless customer experience. This will become especially important for vulnerable households as the year unfolds.

In summary

Managing the cost-of-living crisis will be complex for every industry. Energy companies and retailers alike will need to work closely with financial service providers and debt collection agencies to establish best practice models that protect their business, brand and vulnerable people.

It is a tough ask but with an ethical and values lead approach it is possible to make the future a little more bearable for households who will struggle.