The C-suite’s resilience, creativity, and strategic thinking has been tested in many ways since Covid-19 began shaping our everyday lives. New ideas are required daily to keep up with changes to their businesses and the customers they serve.
In this spirit of innovation, we’re creating the CxO Forums to bring together leaders from around EMEA to discuss the challenges they see in the market and how they plan to overcome them. As chair of these roundtable discussions, I’m looking forward to reflecting on the topics raised at these events and share lessons learned.
It’s an extension of my current role where I speak to many members of the C-suite in our industry, including from major international banks. Those I have been in touch with lately have noted the different ways Covid-19 has affected their customers, depending on where they live and their circumstances.
Banks operating in countries with higher levels of government support for people, such as furlough schemes, have not experienced anywhere near the levels of bad debt in their portfolios compared to countries with lower government stimulus.
There has also been a split in customer distress largely depending on people’s employment sector. Covid-19 has had a largely positive effect on the bank balances of people who can work from home. This group has seen its income remain stable, while opportunities to spend on commuting, restaurants, pubs, and holidays have been much harder to come by.
We’ve heard from governments around EMEA hoping these people will quickly part with their accumulated cash to boost economies, whereas from lenders’ perspectives, they may be good targets for new products and services.
Unfortunately, for many others, a drop in income has eroded what disposable income they had. With regular costs remaining level, they are more likely to enter a lender’s collections cycle. A good number of this group will never have found themselves in such a situation before.
New data sources
For lenders the question is how they could understand a customer’s financial situation at a time when traditional data on its own may not tell the whole story?
Most banks I speak to are considering adopting new data sources into their decision making processes, if they are not doing so already. In markets where there is limited bureau data, Open Banking or PSD2 data provides a view of bank account transactions which are very insightful when predicting risk. They allow lenders to understand how income and expenditure may have shifted during the pandemic, and even if, after a temporary shock, a person’s income has now returned to pre-pandemic levels.
Some more advanced lenders are also considering how to apply transactional data to the SMEs in their portfolios. Government stimulus for these companies is falling away over the coming months. Banks need to be able to differentiate between businesses in bad shape – which ones are likely to return to pre-pandemic performance, and which are only surviving due to subsides?
New data sources can provide insight into SMEs today instead of the traditional data which could take up to 12 months to appear on an organisations’ annual reports.
As lenders around EMEA look to emerge from the Covid-19 crisis in the second half of 2021, it’s clear many will rely on alternative data sources to make the highest quality decisions on both consumers and businesses.