In this blog we focus on the impact of the economic landscape on consumer affordability, inclusion and vulnerability, as well as the challenges that organisations face and what they can do to address them.

Increased interest rates and continued cost-of-living pressures have been weighing heavily on the hip pockets of many Australians. Our Forrester 2022 Business and Consumer Insights Report revealed that 43% of Australian consumers say they feel anxious about their financial situation and 35% say they live paycheque to paycheque. A growing number of Australian homeowners are battling increasing pressure on their home loan repayments and having to dig deeper to keep up. With an estimated 800,000 fixed-rate loans due to expire this year and reset to a significantly higher cost, the pressure is set to continue1.

Lenders are acutely aware of the financial pressure their customers are experiencing and the impact, with 100% of risk experts in our latest Risk Radar Report stating it’s likely or very likely that customers will experience increased levels of hardship in the next 12 months. Furthermore, 58% of risk experts believe a looming interest rate cliff is likely given the many fixed-rate loans coming to an end later this year.

Lenders are increasingly focused on helping customers understand the options available to them and how best to support their customers through the coming months, whatever their financial situation. The range of ongoing support offered by lenders can include a full or partial payment deferral, a move to interest only payments for a period, or extending the term of finance to reduce payments, depending on the borrower’s circumstances. However it can be challenging for lenders to know when a customer is experiencing hardship until it’s too late. Our Risk Radar Report revealed that 53% of risk experts surveyed say their organisation can’t reliably identify a customer is in financial stress until they miss a payment and no expert said their organisation was highly effective at proactively identifying when a customer is in financial stress. At the same time, there are Australians who are minimally impacted and wish to borrow, and lenders are looking to be able to identify these individuals where they can extend finance appropriately.

Key KPIs needed to make effective checks

Bring able to recognise which of the most valuable checks that you need to make at the right point in time, the right place and right frequency in which you make those checks is key.

  • Understanding payment holidays and monitoring these
  • Tracking people’s propensity to pay
  • Understanding when customers can start repaying

The use of transaction data combined with bureau-based data

High quality bureau data can provide insightful and unbiased information about a customer’s credit commitments and financial circumstances, and how they might have changed. This data combined with automated income and expense categorisation from transactional data can reveal not just information about a customer’s income and expenditure, but also vulnerability.

By leveraging a broader range of data sources, lenders can significantly improve the accuracy of their creditworthiness and affordability assessments, as well as identify at-risk customers faster.

Customer affordability, inclusion and vulnerability: Tools that can address these challenges

Credit bureau information enables lenders to get a deeper understanding of an individual’s credit profile. This allows lenders to look at areas such as whether customers are starting to miss payments or increase their debt levels. These can be useful indicators of whether someone may become more financially stressed.

Lenders are also able to leverage credit bureau data triggers to further enhance monitoring and early warning systems to detect changes and spot customer vulnerability faster. Triggers is a comprehensive monitoring tool that helps lenders act quickly when changes occur with high-risk customers. Lenders can choose the events most relevant to them so that only the most important alerts are brought to their attention and allow them to assist customers when they need it the most.

Currently, many banks have access to transactional data in their own transaction account customer bases and we are seeing banks wanting a more granular analysis of their transactional data. This can be done easily with the use of automated income and expense categorisation technology, a batch processing engine that uses existing transaction account data to provide invaluable insights into the financial wellbeing of customers and prospects.

For lenders, knowing how much a customer or prospect earns and how it changes is also important, but it’s more complex than ever before, particularly where there are multiple employers ,employment combined with self-employment, short term contracts and gig work, property income and so forth. Automatic transaction categorisation takes the pain out of identifying, categorising and quantifying income and provide insights such as income shock, how income has changed and give a clearer picture of an individual’s financial position.

Experian is here to help you find a way through. If you’d like to better understand how the cost of living affects your portfolio and how Experian can help, please get in touch with us using the form below.

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[1] Mortgage risk to spike in 2023 – PEXA, Australian Broker