Most financial institutions, including banks, insurance companies, mortgage and other specialist lenders, offer secured and unsecured personal loans to anyone with a reasonable credit rating. As central bank interest rates have been at a historic low for over a decade, the amount of personal debt in Western economies has ballooned to an incredible extent. For instance, according to the ONS, the total personal debt in the UK in March 2022 was approaching a staggering £1.8 trillion. This amounts to around 90% of the country’s entire GDP.
The recent dramatic increases in global energy prices are only one factor contributing to the eye-watering cost of living rise in the world economy. The Covid pandemic and the ensuing supply chain disruption as well as the recent conflagration in Ukraine have pushed inflation to levels not seen since the late 1970s. It is inevitable that household budgets will be squeezed much further as mortgage interest rates are set to soar.
In an economy that relies heavily on finance for anything from cars to household appliances, large swathes of the public will struggle to meet their financial commitments over the coming months and years.
Finance providers would be well advised to take preventive action to protect themselves against the inevitable fallout from this economic climate. In a world where people are forced to make harsh decisions between feeding their children or heating their homes, the repayment of debts may take a lower priority. This may result in people accumulating further debt, eventually resulting in record numbers of loan defaults and possible personal bankruptcies. This will create a problem not only for millions of borrowers but also for lenders who may need to write off large sums and thus struggle to survive the coming crisis.
“Citizens Advice said 5 million people had indicated that they would not be able to afford April’s energy price rises, while in a survey by the Money Advice Trust one in five adults said they were likely to borrow or use credit in the next three months to cover essentials.”
The Guardian – 22nd March 2022.
By deploying proactive contact solutions such as Noetica’s SmartBound™ technology, forward-looking enterprises can talk to their customers before their circumstances become too severe, in time to prevent unsalvageable defaults on bills, loans and other financial obligations. Using such technologies to circumvent avoidable calamitous commercial damage will determine who will be the survivors of the continuing cost of living crisis.
Sending the usual offers of assistance alongside bills and other payment requests (e.g. “Please get in touch if you have difficulties settling your bill” or “Contact us for assistance if you are struggling to pay…”, etc.) has clearly little effect. Your customers will be either too embarrassed or perhaps in denial of their financial difficulties to call you. However, if you can use your data segmentation tools effectively, you will be able to identify those most at risk and contact them proactively to offer assistance and ensure that you minimise the amounts that your organisation may need to write off over the long term.