Life is full of ups and downs: events such as bereavement, divorce, health issues and redundancy can lead to an unexpected and sometimes sharp fall in income. This often leads to a period of financial difficulty such as the inability to keep up with mortgage, credit-card or interest payments.
Unfortunately, the COVID-19 pandemic has resulted in many banking customers experiencing one or more of these unplanned events. It is estimated that by the end of the year about 2.2 million people, or 6.5% of workers in the UK could be unemployed, showing just how much the pandemic has exacerbated financial problems for the vulnerable and tipped new groups into financial difficulty for the first time.
UK banks and the regulators have greatly supported the public in the wake of COVID-19: some borrowers have been able to defer mortgage and loan payments for up to three months, extra cash loans for small businesses have been made available and most banks have a support page on their website where they offer advice on coping with the financial difficulties of COVID-19 along with links to specialised support from charities. In fact, our recent Better Banking survey found that 33% of customers trust their banks more as a result of their response to the pandemic.
The UK appears to be making its way out of what we hope is the final lockdown- as the vaccine helps us get the virus under control, our attention shifts to economic and social recovery. We see an opportunity to work with banks to help them use what they have learnt during the pandemic to continue to shape their products and evolve their business models in a way that would allow them to be even more supportive and flexible of an individual’s own personal life shocks. We believe that in doing this, banks can further support the economic and social recovery of the UK, whilst also bringing substantial benefits to their own businesses.
So, what could this look like in practice? The key is avoiding a ‘one size fits all approach’ and instead taking the opportunity to increasingly tailor help in order to maximise effectiveness and efficiency when it comes to meeting customer’s temporary needs. This gives customers time to get back on their feet and back into a position where they are able to meet payments once again.
Flexible lending solutions could help individuals with irregular incomes, such as those working in the ever-growing gig economy or those going through unprecedented life events. These solutions would be more dynamic than normal lending terms, enabling customers to pay back loans in a less linear way, helping them to navigate difficult time periods in their lives whilst also ensuring the banks receive payment. Other potential products could be a form of spread risk loan, or banks using the ever-evolving technology options available to them to track a customer’s monetary situations on a more regular and accurate basis, with the potential of offering customers more responsive and fluid terms on their existing loans.
To further help with creating a flexible service, banks could retain and build on the agile ways of working that many have effectively implemented to deal with COVID-19. Banks could update training to ensure front-line staff are equipped with the appropriate knowledge and training to handle complex cases with sensitivity. Flexible working arrangements for staff can give customers more regular and easier access to their banks, choosing whether to engage using digital or branch services, which can be crucial especially with more challenging situations such as bereavement. This kind of access to support could be extremely helpful in alleviating financial worries during this time and allow the customer to focus on what is truly important.
We believe that banks continuing to evolve their product offerings and ways of working will help to bring about real business, economic and societal benefits. Customers will have a greater chance of recovering financially and once they are back in a stable financial position, banks will be able to support them with things such as offering them the relevant products suited to their specific life stages. Furthermore, showing this level of support during a difficult time in a customer’s life will also lead to increased customer loyalty and brand recognition; they may very well create a customer for life. Finally, by supporting customers to regain their financial footing, we are likely to see an increase in their level of consumption and investment in the economy, externalities that will be invaluable in the UK’s recovery from the pandemic and growth going forward.