The news agenda is making pretty bleak reading currently. Everywhere you turn you’re met with stories about the cost of living crisis, rampant inflation, rising interest rates and an impending energy emergency. With forecasters predicting it will get worse before it gets better.  

Many are feeling the pinch as belts tighten. Incomes are not going as far as they used to. It’s a double whammy. Prices and costs keep going up, but salaries, savings and investments are failing to keep track.  

This year will see more and more people slipping into the red and being classed as ‘vulnerable’ due to their inability to pay their debts. It’s highly likely we’ll see an uptick of those who’ve never been in difficulty before. Poor financial wellbeing can make mental health problems worse, and poorer mental health can contribute to a worsening financial situation. It can be a vicious cycle. The earlier we can spot the signs the better, so we can intervene and offer help.  

We all have commercial challenges and stakeholders to please but in these unprecedented times we must adopt a customer first approach. The recent FCA Consumer Duty policy statement states firms need to avoid causing foreseeable harm. Whilst it’s not active yet applying it in principle will ensure firms are acting in the best interest of consumers. 

So what can be done, in terms of balancing commercial needs and doing the right thing by your customers? 

1) Be proactive

There’s no time like the present. While we can all feel the rising prices impacting our bank accounts, sadly the worst is still to come.  

For context, in July, the UK recorded its most expensive summer weekend electricity on record*, costing nearly five times the seasonal average. Plus, with energy bills alone now being estimated at £3,300 this winter**, financial circumstances are only going to deteriorate. Let’s not forget, the average UK income is c.£30,000, meaning a considerable portion of people’s pay packets are now just going towards keeping warm and having the lights on.  

It’s key for lenders to be on the front foot, before things start to spiral. Identifying and working with vulnerable customers should be a priority. There is a range of forbearance tools which can be used; payment holidays, freezing or waiving of interest, more manageable plans, or extending loan terms if this is what’s needed.  

With the FCA now placing more protections on customers, a change in approach will be a deciding factor in any successes.  

2) Confine sludge to the bin and improve self service

Increasing options to self-serve could also help. Consumers often don’t like talking to people about financial matters, especially when they’re struggling. Increasing options to help them manage their finances online could go a long way. By removing unnecessary friction customers can decide what products, tariffs and plans are best for them, making decisions for themselves without outside influence.  

However, accessibility is key. Some customers may not have access to online services or the hardware to access it. So, it's important firms cover all bases and ensure they can still service the vulnerable, providing the same freedoms and frictionless approach as digital, through more traditional channels.   

3) Outcomes over income

The FCA’s Consumer Duty reaffirms  the requirement for financial services firms to concentrate on outcomes. It’s a real opportunity for firms to put people before profit and start to rebuild the trust that has been eroded with financial consumers. It won’t do reputations any harm either.   

Taking the time to understand the customers’ circumstances to tailor the support provided will be more important than ever.  A one size fits all approach, particularly when dealing with vulnerable customers may cause more harm.    

Winter is coming, and it could well be the most expensive on record. Firms should be on the front foot, working with consumers to drive positive outcomes. People shouldn’t be forced to choose between bills, eating and heating, especially when it can be avoided.   

Energy Price: UK Set for Most Expensive Summer Weekend Electricity on Record - Bloomberg

** UK energy bills ‘could hit more than £3,300 a year this winter’ | Energy bills | The Guardian

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