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How to fix financial services' arrears challenge

Paul Willis Paul Willis

Rapidly increasing arrears on commercial and consumer loans are one of the most pressing challenges facing the financial services industry. Paul Willis explains how our market-led solution helps you build a sustainable framework and achieve best practice.

COVID-19 has had a huge impact on financial solvency. Many businesses and individuals are seeking government support, and up to 1,000 financial service customers are falling into a state of financial distress every day.

As a result of all this, business lenders are facing a growing number of customers unable to make repayments and, understandably given the uncertainty of the last 18 months, few financial service providers have had the process and infrastructure in place to cope with this demand.

To help you make the right decisions to cope with these issues, we're working with Equiniti to build a market-led solution with a best practice focus on technology, people and data strategy. This will help you adapt to the current market landscape and manage demand.

Challenges for lenders

The significant growth in consumer and commercial loan arrears has likely established a number of problems for you. A key challenge facing the arrears industry is the rise in non-performing loans (NPLs), which are leading to a large amount of uncertainty over the timescale and degree of impact.

The volume of NPLs that an organisation faces is often not clear, and firms do not have the infrastructure to prepare for long term horizons. Similarly, lenders are being pressured by the increasing regulatory requirements, meaning firms have to tackle their arrears volume under tight compliance requirements, mainly the FCA Principle 6 of treating customers fairly (TCF).

Many lenders also lack the necessary tools to handle the arrears' demand. An increased volume of claims has created friction with the arrears, forbearance and insolvency operations currently in place at banks and other financial services - these protocols are rarely designed for scale, and not set up for this extreme situation. Additionally, you may not hold the necessary data to establish reliable scenario planning and decision making in most cases, creating a vacuum of significant metrics for organisations to build their infrastructure.

Many lenders are also understaffed, and demands cannot be met with smaller staff numbers. Sometimes the necessary human resources and key skills needed to meet customer demand is not in place, and certainly not as the necessary level to meet the current demand.

You might not have the necessary skills and experience in your team - there's a shortfall on this across the market. Management controls and reporting measures may not be adequate, and the uplift in arrears volumes is not being met.

A market-led solution for lenders

In partnership with Equiniti, we've analysed the current problems in the market and have established end-to-end capability to support debt resolution operations and implement them accordingly to our clients' goals.

We provide a scalability support model that can be deployed flexibly and quickly to ease the pressure of organisations struggling to meet demands. This model builds on our long-term market commitment to bring clear and actionable solutions to our clients, as short-term fixes are rarely sustainable in the current market.

You need a knowledgeable framework to efficiently meet demands, so we need to provide better support in this specialist area and create core management tools to help overcome further increases in customer arrears volumes.

This will also help organisations meet their compliance requirements and follow best practice to ensure the best outcome for both the firm and the customer. Implementing these changes can help you manage potential risks and keep the future remediation under control.

What can we do for you?

We aim to help lenders ensure stability in these unprecedented times. Our experience, technical expertise and resources in customer arrears management ensures that you can fulfil your compliance requirements.

We follow best practice ‘financial distress’ business models and provide practical guidance on operation performance, regulatory requirements and horizon scanning. Equiniti supports this by bringing components that provide fast support for key mobilisation activities, data and fraud, management analytics and competent resources supplied at scale to match a lender’s needs.

Equiniti is an international specialist in payments and technology-led services, while we are one of the world’s largest networks of advisers, delivering a quality service at global scale.

Together, our complementary skills and knowledge make a huge difference in helping you to manage the arrears of customers in financial distress. And, we'll enable you to do this through best-practice techniques that are agile, reliable, compliant and fair protecting the vulnerable and delivering the best outcomes for both you and your customers.

If you would like more help managing the rise of customers in financial distress, or any other challenges facing the financial services industry, get in touch with Paul Willis.

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