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Matthew Dale 1
Written by
Matthew Dale
May 07, 2020 Industry

Payment Holidays: A Risk & Operational Upheaval

With the FCA’s announcement in mid-April, the majority of retail credit products are now subject to measures that support consumers facing payment difficulties due to COVID-19. The favoured option of temporary forbearance is a payment holiday of up to 3 months.

We discuss two key areas where the recent surge in forbearance activity could cause strain for lenders.

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The exceptional demand for this measure throughout the industry has focussed the spotlight on the need for dynamic Customer Management and has put customer-facing teams under considerable stress.

Below, we discuss two key areas where the recent surge in forbearance activity could cause strain for lenders.

Dynamic population monitoring

A stable economy over the past decade has resulted in the forborne population often representing an immaterial proportion of the book, and simple reporting of this group satisfied stakeholders during this time. However, the speed with which the landscape has changed over the past months means gaps in customer insight now exist within established reporting suites.

Lenders are seeing a substantial portion of customers using payment holidays to help them during this window of financial stress. It is therefore imperative that the Management Information (MI) evolves markedly to reflect this, and the resulting insight that is gathered drives risk mitigating actions throughout the business.

It is also vitally important to ensure management has visibility of the performance of customer tranches after the payment holidays have ended, ensuring the risk of this group of stressed customers is managed effectively throughout the remainder of their lifecycle.

Informative and granular MI of the arrears and forborne populations can form the foundation for more accurate arrears forecasting and stress testing of the portfolio; this will be a key priority for stakeholders as they look to fully understand the impacts of COVID-19 on the profile of the book, provisions and cash flows.

Emerging customer management challenges

The wide advertisement of payment holidays within media outlets and consumer forums has ensured a significant take-up by customers, which has brought fresh challenges to all functions and heightened the need for collaboration and an efficient feedback loop. A large number of factors need to be considered to avoid potential customer detriment.

Previously simple and streamlined processes, such as Credit Bureau reporting, may now be subject to ‘hot fixes’, draining team resources and increasing the risk of errors. Simultaneously, the time required to talk to each customer is increasing; many customers will not have experienced personal and financial hardship or uncertainty to this degree, and this should be reflected in the conversations and resolutions discussed with them.

Lenders also need to ensure that payment holidays are in the best interests of customers in the longer term, and that each customer understands the impact and cost. This means effective collaboration between teams to ensure customer service agents have an accurate ‘cost calculator’ covering all resolutions (term extension, recapitalisation, repayment plans, etc.) to enable effective discussions and clarifications.

It is important that lenders put in place the right tools, automation and risk mitigants as quickly as possible to support these customer service needs. This will provide customers with the best care and experience possible during what is clearly a difficult time for many.

If you are interested in discussing any of the challenges outlined above, please get in touch.


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