Putting the customer first: the three pillars of customer-centric lending models

by jcp
Editorial & Advertiser disclosure

By Sarah Touzani, COO at Creditspring

Whether the result of redundancy, self-isolation or furlough, the COVID-19 pandemic has wreaked havoc with the financial stability of many people in the UK. To support them through uncertain financial times, many turned to loans for support, and we have seen borrowing levels soar as a result, with nearly 9 million people borrowing more money than usual by the end of 2020.

As we emerge from the epicentre of the pandemic, it’s clear that while the threat of the virus may have eased, the financial shock continues to ripple. Indeed, our Stability Hub tool, which offers transparent, clear guidance for those suffering financially – has seen an 82% increase in members since the start of the pandemic, and despite restrictions lifting, is still continuing to attract 2,000 new members each month.

With credit services becoming increasingly in demand, the spotlight falls on the lenders providing these loans. Now more than ever, as people try to recover from the financial impact of the pandemic – whether that’s through rebuilding depleted savings, trying to improve their credit score or simply paying their bills on time – it’s essential that financial services companies go above and beyond to provide the right support for customers. As trusted financial institutions, lenders seize this opportunity to use their position for good, and provide resources that help their customers to become more financially resilient in the long term.

The rising tide of low financial resilience 

The people most likely to borrow are those with ‘low financial resilience’ – those experiencing high levels of debt, low levels of savings as well as erratic or low earnings. By the end of 2020, the number of people with low financial resilience had risen by a third from the year before, and the latest figures show that there are now 14.2 million people across the UK that fall into this category.

Faced with financial instability, people with low financial resilience will often turn to borrowing to get by. The issue is that these borrowers are more likely to have inconsistent or ‘thin’ credit files – perhaps due to fluctuating income or a lack of borrowing history – which can make it difficult for them to access mainstream credit options. This is an issue that affects 12-15 million near-prime borrowers in the UK, both young and old. Left with little other choice, these people may resort to high-cost lenders, which are typically riddled with fine-print and hidden costs, and can trap borrowers in long-term debt spirals.

Building lending solutions that put the customer first

Enter stage left – fintech lenders. Being digital at their very core, fintechs can harness the power of technology – to create new, more inclusive and responsible lending models. Using technologies that draw on real-time data, such as open banking, lenders can help customers to achieve financial stability in the long term, by providing personalised, live insights that will enable them to identify their unique pain points, and in turn, learn how to fix them.

Simultaneously, these services must support customers in the short term with transparent and affordable lending services. In my experience, there are three elements of this offering that are essential to success – transparency, education and inclusion.

  • Transparency

Nowadays, it can be difficult for people to know which financial brands to trust. In the lending sector especially, there is a widely acknowledged lack of transparency, caused by everything from confusing APRs to unauthorised overdrafts with eye-watering charges hidden amid terms and conditions that can take up to an hour to read. There is a clear need for greater transparency in financial services, establishing offerings that do right by the customer and that ultimately enable them to make the financial decision that is right for them.

Steering away from unregulated lending and unauthorised overdrafts, fintech lenders must supply affordable and regulated finance that cannot rack up interest – at least not without the borrower being completely aware of what they have signed up to.

At Creditspring, for instance, we believe the subscription finance model upholds this core tenet of transparency, with no interest and capped costs meaning that there is no risk of running into a debt spiral. Customers know upfront the cost of credit they receive, cannot increase their loan sizes and even get help with repayment and budgeting.

  • Education

Lenders should not underestimate their role in supporting the financial well-being of their customers in the long term. Education is a crucial element of ensuring that customers are empowered to independently navigate the financial world after relying on alternative forms of credit for a period of time.

Using detailed open banking insights, lenders can produce personalised advice that is tailored to a borrower’s unique financial situation. In doing so, they are able to educate customers on how to make better and more informed financial decisions, and ultimately enabling them to retain financial independence.

Whether it’s actionable tips to support responsible financial decision-making or to help borrowers to build credit scores, lenders can harness a wealth of data to provide personalised support for their customers, so that they can one day reach, and maintain financial independence.

  • Inclusion

Those experiencing a fluctuating or relatively low income will be familiar with rejection from mainstream lenders, who are less likely to accept them due to a low credit score and the perceived higher risk of missed payments. Take the self-employed for instance, whose job is cited as one of the main reasons for rejection from mortgage lenders – affecting 33% of prospective first-time buyers.

Using open banking, there is an opportunity to cater to those whose needs aren’t being met by traditional lending models. The insights provided by the technology give lenders a more accurate, up-to-date view of an individual’s finances – from income and recent borrowing – and empower them to lend in both an inclusive and responsible way.

Achieving long-term financial independence

As we emerge from the pandemic and return to normality, lenders have a role to play in offering accessible and affordable solutions for a variety of financial concerns, including credit.

With an ever-growing pool of customers unable to access mainstream credit, fintech lenders are able to harness real-time data to enable more and more prospective borrowers to access credit. The lending sector has the opportunity to provide straightforward services to customers while equipping them with the knowledge they need to reach and maintain financial freedom.

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