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Financial Institutions Take a More Proactive, Holistic Approach to Vulnerable Customers

(London):  Fair treatment of vulnerable customers has been high on banks’ agendas since the Financial Conduct Authority (FCA) issued guidance in 2015. In the three years since, financial institutions have invested time, money, and effort to identify and improve outcomes for customers in vulnerable situations.

Vulnerable consumers, or those whose personal circumstances make them especially susceptible to detriment, make up 2.4% of credit card accounts and 3% of balances, on average, according to Auriemma’s UK Card Collections and Recoveries Benchmark. However, the size of vulnerable populations varies widely based on portfolio composition and other factors, with some issuers reporting larger populations.

Until recently, vulnerability was tied to debt collection, as there is a natural correlation between vulnerable customers and those in arrears. Now, attention has shifted to proactively identify vulnerable consumers across the product lifecycle, with more precise treatment applied based on customers’ personal circumstances.

“Vulnerability is an increasingly complex concept and cannot be treated as a binary phenomenon,” said Louis Stevens, Director of Auriemma’s UK Roundtables practice. “While card issuers recognize the benefit of having a standardised definition for vulnerability across the industry, it’s virtually impossible to capture all the grey areas with a single, uniform classification system.”

Here are three ways financial institutions are taking a more targeted and holistic approach to address customer vulnerability:

Proactively identifying vulnerable customers. While customers in arrears tend to be more vulnerable, issuers are embedding their approach across more functions of the organisation. Over the past year, the focus has shifted toward identifying potential vulnerability, regardless of where the customer is located within the lifecycle. For example, Customer Service teams are now tasked with identifying triggers or clues to vulnerability, such as a mention of illness, and proactively monitoring potentially vulnerable customers even if they make payments on time.

“By definition, vulnerable customers are anyone who can suffer difficulty, and it’s the job of financial institutions to identify and rehabilitate that,” Stevens said.

Tailoring treatment to individuals. While the FCA defines vulnerability broadly, financial institutions have developed more precise definitions to meet non-standard needs across a diverse customer base. Most card issuers use two broad categories to determine severity – for example, “soft” vs. “hard,” “temporary” vs. “permanent,” – with further sub-categories to capture the nuances of a customer’s situation. In fact, issuers may have 20 or more classes of vulnerability to ensure a flexible, tailored response. For example, a customer with hearing or visual impairment may need special assistance to complete routine payments. These cases may not typically be indicative of financial difficulty but can be a sign of vulnerability.

Maintaining a flexible exit strategy. Effectively dealing with short-term vulnerability, such as temporary unemployment, is another key consideration for financial institutions. In particular, it’s important to have a defined exit process for customers who move out of a vulnerable situation, to ensure vulnerability treatment is accurately applied and customer care efforts are appropriately prioritised. Card issuers are taking steps to establish regular contact to monitor the customer’s situation and ensure timely removal of vulnerability flags for rehabilitated customers.

“Anyone can find themselves in vulnerable circumstances,” Stevens said. “Financial institutions will continue to reevaluate their vulnerability strategies to ensure a culture of empathy, support, and inclusion.”

 

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call Louis Stevens at +44 (0) 207 629 0075.

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Cardholders Want to Communicate Digitally, But Issuers Are Still Getting Up to Speed

(London, UK): Hold the phone: Email is cardholders’ most preferred means to communicate with their credit card providers, but concerns remain before issuers can deliver a consistent customer experience in that channel. Email topped the list of all channels, including phone calls manned by agents, live chat, mobile apps and SMS, according to Auriemma Group’s recent issue of UK Cardbeat.

Nearly four-in-ten cardholders prefer email when communicating with card issuers. Despite this consumer preference to communicate with card issuers by email (and with younger cardholders ages 18-34 also preferring live chat or mobile apps), issuers had not—until this year—invested as heavily into the channels for servicing or Collections-related activities. At a recent meeting of Auriemma’s Collections and Recoveries Roundtable in London, Collections executives discussed how digital channels could offer new opportunities to refresh contact strategies.

When weighing particular channel investments, issuers must analyse the performance of each potential channel and determine the contact methodology and channel mix that creates the best experience and increases an agent or collector’s success. Issuers are exploring how different channels can augment contact rates and payment rehabilitation within collections. For example, some executives are in the process of testing email’s efficacy by sending default notices digitally along with a conventional letter.

“The industry knows that email could be a highly successful contact channel, particularly for those in collections who tend to close off contact at some point in the lifecycle,” says Louis Stevens, Director of UK Industry Roundtables. “There is opportunity to develop email as a priority channel instead of a supplementary one. Many collections operations today are centered around a call-and-collect model, which could be less effective as cardholders skew toward preferring digital communication.”

However, integrating digital channels into the collections process can be a challenge, due to legacy system restrictions and painstaking approval processes. Currently, only 20% of Roundtable members offer live chat within the collections process, and further progress has been limited by the prioritisation of other controls, such as conversation transcript recording.

Despite the momentum for email, it is important that issuers maintain an excellent experience in the phone channel, which is the second-most preferred. One-third of customers prefer speaking with a representative on the phone, which is starkly higher than the 3% who prefer an automated service, such as an IVR.

Even though consumers have a strong preference for migrating more routine activities to digital channels, the phone is still the centerpiece for more in-depth and complicated interactions. This is evidenced in the Card Collections and Recoveries Roundtable Benchmark Study, which reports that the average handle time for calls has increased 11% since January 2018.

“Consumers don’t mind using self-service or automated options for simple tasks, such as due date inquiries,” says Stevens. “But for now, cardholders still call when they need a more impactful and in-depth experience.”

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma in March-April 2018, among 800 adult credit cardholders. The number of interviews completed is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.

About UK Card Collections and Recovery Roundtable 

Auriemma Group runs a series of information sharing and benchmarking Roundtable groups designed for executives and managers in collections and recovery. These Roundtables combine executive meetings, industry-leading operational benchmarking, and peer group surveys to help participants identify tools, technologies, and strategies to offer best-in-class customer experience at all touch points.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call +44 (0) 2076-290075.

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Prepaid Card Issuers Can Benefit from Integrating Offerings with P2P

(New York, NY):  Older millennials are increasingly eschewing cold hard currency for budget-friendly alternatives, considered to be even more secure than credit, debit, and store cards. This older millennial population, and other desirable demographic groups, are increasingly turning to P2P payments and reloadable prepaid cards when transferring funds. In fact, over one-third of cardholders have used P2P payments (42%) or a reloadable prepaid card (36%), according to a new study from Auriemma Group, which was conducted in partnership with the Network Branded Prepaid Card Association (NBPCA). The study highlighted use cases for P2P payments and prepaid among the banked population, shedding new light on who uses them and why they are an attractive payment alternative.

The results point to an opportunity for prepaid card issuers to integrate their offerings with P2P to better capture market share. The commonalities between these user groups make a compelling case. Most current P2P payment users and prepaid cardholders are male (57% and 53%, respectively), college-educated (62% and 53%), parents of minors (56% and 50%), and report a household income over $50,000 (67% vs. 55%). While these attributes register most strongly with the P2P payment users, their similarities highlight the connection between both groups.

“Our previous research tells us that those who use P2P payments are about twice as likely to currently hold a prepaid card than their non-using counterparts,” said Jaclyn Holmes, Director of ACG’s Payment Insights. “This cross-section of users could create increased engagement with prepaid cards should they be accepted by P2P payments.”

Users of both prepaid cards and P2P payments are more than just demographically similar. When looking at the perceived benefits of both methods, users of each report comparable advantages, namely security, budgeting, and convenience.

Reloadable prepaid cards are a particularly attractive payment alternative for consumers for whom security and budgeting are top of mind. Despite having a banking account, those who have used prepaid cards believe the most beneficial aspects are that they don’t link to a bank account (44%), offer a secure payment method (33%), and help with budgeting (33%). Prepaid cardholders aren’t the only ones who think the method is secure—most consumers believe prepaid cards are more secure than credit (59%), debit (60%), and store cards (58%). And unlike cash, prepaid cards bring these benefits to the digital shopping experience.

“The payment method allows cardholders to purchase online worry-free, as doing so will not compromise their checking account,” said Holmes. “And prepaid cardholders can set limits for category or everyday spend, allowing them to more easily maintain a budget.”

The perception of security is also high with P2P payments. Although users have a more positive impression of the method’s security than non-users, both believe the method is secure (88% and 65%). And this isn’t the method’s only similarity to prepaid cards.

“A small group of consumers utilizes P2P as a budgeting tool,” Holmes said. “About half of those who leave money in their P2P account do so because it helps them save money.”

Convenience and speed also earn top marks with P2P, with about nine in ten users reporting P2P payments make it easier to pay people far away (92%), that payments clear faster than checks (90%), and that splitting checks or bills is easier (87%).

“It’s safe to say we aren’t moving towards a cashless society, but we are certainly using less cash than before,” Holmes said. “By themselves, P2P payments and prepaid cards provide more flexibility, convenience, and a greater sense of security.”

The collaboration with the NBPCA marks the first time ACG has partnered with an industry association to conduct custom consumer research and signals ACG’s ongoing commitment to work with industry associations to illuminate solutions in an evolving environment.

“The findings of this study affirm what we in the industry have long known, that consumers turn to prepaid for the security and convenience the products provide,” said Brian Tate, president and CEO of the NBPCA. “From budgeting to safety to digital access to funds, it is clear that prepaid products are meeting the needs of our consumers, and prepaid providers will continue to build on the long tradition of evolving our products to continue to do so in the future.”

While this study focused on the banked population, a potential future study may focus on the unbanked population.

Survey Methodology

This study was conducted online within the US by an independent field service provider on behalf of Auriemma Consulting Group in March 2017, among 800 debit cardholders. The purpose of this research was not disclosed nor the criteria for qualifying. The average interview length was 20 minutes.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, contact Jaclyn Holmes at (212) 323-7000.

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