Using data to identify vulnerable customers means companies can act swiftly to provide support to people who need it.

This article focuses on why financial services companies and energy suppliers need to do more to identify vulnerable customers.

The FCA is stepping in to overhaul the current regulatory frameworks to protect consumers and firms must now act to deliver good outcomes for all consumers.

The FCA want to see real results in real time. Organisations must be able to evidence that the processes they have in place will deliver good customer outcomes.

OFGEM constantly assesses the experience of customers in vulnerable situations and takes action to address the issues they face as energy users. The Consumer Vulnerability Strategy 2025 has been finalised and priorities have been set out to protect gas and electricity consumers in vulnerable situations until 2025.

The OFGEM strategy highlights that consumers in vulnerable situations are not identified effectively and the regulator wants energy companies to regularly maintain and proactively update the data they hold on customers.

If more organisations implemented early warning indicators to proactively engage with vulnerable customers, they would protect more customers from harm.

If done right, this can drive positive change for firms as well as consumers. But it goes beyond good intentions – firms must explore all the options that are available to them to identify vulnerable consumers and take proactive action to make a real difference to the outcome for the customer.

Too often, situations where vulnerable customers have not been identified by the organisation providing financial services and energy services result in action by third parties to resolve matters where the customer is experiencing arrears and a build-up of debt.

“In scenarios whereby financially vulnerable customers have not been able to pay a bill or have had a significant amount of unpaid debts with either banks or energy companies, agencies are often used to collect funds on behalf of companies. This process is never pleasant for anyone involved – the customers, the companies, and even the agencies themselves.

 

In many cases it is necessary for businesses to collect money which is owed. However, if it is a financially vulnerable customer in this situation, then the bank or energy provider has some responsibility to ensure that all possible measures for avoidance have been taken and that such a step is a last resort. Too often, customers find themselves at the end of intimidating debt collection letters or phone calls which, had the bank or energy company been more proactive in understanding and managing their needs in the first instance, they needn’t have received.”

 

Source: Baringa, Financially Vulnerable Customers, Baringa report following a survey of 3000 UK respondents.

Vulnerabilty is rarely static and changes to individuals’ personal circumstances often lead to new vulnerabilities.

When a firm offers a financial service, they assess the credit risk based on the individual’s current circumstances, but they cannot predict if someone is going to lose their job, have their working hours reduced, suffer a bereavement or a relationship breakdown for example.

The FCA clearly define the characteristics of people who they deem to be financially vulnerable.

The FCA’s Guidance explains that

“A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”

 

Source: https://www.fca.org.uk/publication/finalised-guidance/fg21-1.pdf

Many people do not consider themselves vulnerable – no matter what characteristics they have or how difficult their circumstances, and they will not want the label ‘vulnerable’ applied to them. People also may become more or less vulnerable, and so have an increased or reduced risk of harm throughout their lives.

Using data which identifies the characteristics of vulnerability defined by the FCA allows a firm to utilise these early indicators to proactively engage with vulnerable customers at the time they really need help.

Too many organisations are going to realise that they did too little, too late.

Acting now and using data to identify the individuals who are most at risk of harm will create better outcomes for customers and the businesses providing them with services.

This means that organisations can not only do the best for their customers but, additionally, they can evidence to the regulator they are taking the necessary steps to identify and protect consumers, as well as reduce the commercial risks to their business that customer vulnerability poses.

Many organisations have created a vulnerable customer policy and often they quote the FCA’s definition of vulnerability or a version of it.

Using data to identify vulnerable customers.

Many datasets that are available are out-of-date, or only identify vulnerability after real financial difficulties – which makes it even harder to prevent harm.

Energy companies have been told to proactively update their Priority Services Register data by OFGEM and the regulator wants to see evidence there has been an improvement to support consumers to self-identify.

Using data, Data On Demand’s approach helps identify vulnerability as early as possible – minimising further harm to the individual.

Data On Demand’s ID.VU solution aggregates short-term, high-cost loan application data in real-time allowing organisations to identify customers suffering characteristics of vulnerability as soon as they become at risk of harm.

Since June 2020, ID.VU has identified over 2,700,000 people in the UK who have shown early indications of financial vulnerability and every month that number continues to grow.

The FCA’s Financial Lives Survey identified that

“One in ten (11% or 5.6m) held one or more high‑cost loans, unchanged from 2017 (10%). It was very common for people to be using high-cost credit to cover day-to-day expenses.”

 

Source: https://www.fca.org.uk/publications/research/financial-lives-2020-survey-impact-coronavirus

This means that the ID.VU database can enable an organisation to check against 48% of the UK population who have a high-cost loan and who, very often, are using high-cost credit to cover everyday expenses.

Any organisation offering financial services to consumers should be utilising  ID.VU  as part of their vulnerable customer strategy to identify their customers most at risk of future harm today.

In the last 31 days alone ID.VU has identified

54,012                People who needed to borrow money for an emergency expense

33,474                People who needed a high-cost loan to pay household bills

14,012                People whose loan purpose was ‘Short Term Cash’

12,700                People who have reduced working hours

11,095                People whose employment status changed to ‘Unemployed’

10,124                People who applied for high-cost credit to pay debt

5,819                  People who needed to borrow money to pay rent/mortgage

5,178                  People who said their income had reduced

Focusing on rising consumer energy costs, data from ID.VU identified

“The increase in applications for high-cost credit to cover bills since March 2022 has been 24% – rising from 26,860 to 33,474 in the last 31 days.”

 

The latest release from the ONS about the impact of increased cost of living across adults in Great Britain: November 2021 to March 2022 shows that a 79% increase in gas and electricity bills was one of the reasons most that adults reported their cost of living has increased.

Statistics from Baringa’s survey show from an energy industry perspective, customers prefer to receive early money advice directly from their providers rather than debt agencies:

• Less than 10% of financially vulnerable customers agree that putting them in contact with relevant debt advice agencies would be helpful to them
• However, among those who have received help obtaining early money advice from their providers, 1 in 2 would agree that such services are helpful
• Despite the popularity of receiving early money advice from energy providers, just over 15% of those vulnerable customers who have talked to their provider about their situation, have received such advice, indicating a service gap that needs special attention.

Source: Baringa, Financially Vulnerable Customers, Baringa report following a survey of 3000 UK respondents.

Every utility provider should be utilising ID.VU to identify their customers who need to borrow money to pay essential household bills.

The ONS findings go on to show

“In early 2022 (6 January to 27 February 2022), 29% of adults could not afford an unexpected, but necessary, expense of £850.”

 

Source: Impact of increased cost of living on adults across Great Britain – Office for National Statistics (ONS).

Focusing on unexpected expenses, data from ID.VU identified:

The data from ID.VU correlates closely with the ONS data, showing that the average value of the loan needed was £762 vs the ONS findings that 29% of adults could not afford an unexpected expense of £850.

In the banking industry, the figures are less favourable than the energy sector. While 32% of those who consider themselves vulnerable agree that banks should proactively contact their customers if they suspect they may be having financial difficulties, only 3% acknowledge that their bank could help them to obtain early money advice and encourage them to talk to debt advice agencies.

Barclays have contacted over 11.5 million potentially vulnerable customers since March 2020.

Barclays say

“We’ve all heard the word ‘vulnerable’ used so much in the media in the last year, but at Barclays we don’t believe that people are inherently ‘vulnerable’. Any one of us could go through a difficult time and need some additional support.”

 

Source: Kathryn Townsend on supporting vulnerable customers / Barclays.com

This statement highlights the need to continue to monitor customers using early indicators of vulnerability which identify customers who become vulnerable and when they become in need of help.

Remember, many people do not consider themselves vulnerable – no matter what characteristics they have or how difficult their circumstances are.

Data On Demand have partnered with The Vulnerability Registration Service (the VRS) to further increase the volumes of vulnerable individuals that organisations can proactively reach.

The VRS host and manage a database of nearly 500,000 self-declared vulnerable individuals.

Consumers register with their website and give a reason for their vulnerability. Organisations can access this information to identify individuals who need help.

The combination of Data On Demand’s ID.VU database and the VRS database create an aggregated view of vulnerable individuals, providing a solution to predict and help organisations avoid customer harm.

Matching ID.VU data with the dates of the declaration of vulnerability from the VRS data identified

9,785 unique people who showed early indications of vulnerability who subsequently went on to register with the VRS

 

More than 90% of the reasons for registering as vulnerable with the VRS were to do with financial difficulty with the remainder being a physical or mental health reason.

If firms can identify and engage with their customers which ID.VU identify as vulnerable they could help customers before they declare themselves as vulnerable.

There are clear benefits to organisations who are identifying and assisting individuals who are at risk of harm which include

Data On Demand and The Vulnerability Registration Service.

Data On Demand and the Vulnerability Registration Service are in partnership and have aggregated the ID.VU database and the VRS database – making the combined data available to any organisation to be consumed via Batch or real-time API interfaces.

This collaboration has created the most powerful tool for any organisation providing financial services to consumers, to enable them to implement early warning indicators and proactively engage with vulnerable customers to create better consumer outcomes and prevent harm.

“The ID.VU database including the VRS data has identified over 3.1m UK consumers at risk of harm since June 2020, with thousands of new people emerging as vulnerable every day.”

 

Forbearance and furlough played their part in holding back the expected tsunami of debt in the UK, driven by stagflation, but the cost-of-living crisis will allow that tidal wave to break through and cause future harm.

Millions are at risk of future financial harm, and this increases the need for firms to be proactive in identifying their customers who are most vulnerable and most at risk right now and in the future.

Any regulated organisations providing financial services or energy services should be particularly interested in the value that ID.VU, including VRS data, creates for them – increasing the sight of vulnerable customers, reducing credit risk, improving affordability, enabling more vulnerable customer contact and meeting their obligations to the regulators.

You can join us in person at the VRS event next week.

Register free using this link The Vulnerability Jigsaw’s Next Piece… Tickets, Tue 14 Jun 2022 at 09:30 | Eventbrite

Get in touch with us today to find out more about how we can help you identify and protect your most vulnerable customers.

Contact

Stuart Murgatroyd

sm@www.dataondemand.co.uk

Simon Gregory

simon.gregory@www.dataondemand.co.uk