In my interactions this week everyone pretty much mentioned being busy, really busy. It does seem economic and activity levels seem to be trying to make up for lost time, with average debt down, and indeed the banks seeing fewer loan defaults as a result of COVID, it all seems quite positive.

Averages can of course be misleading. If I have one hand over the fire and the other in the freezer, on average I am just right. In reality, however I am a getting toasted frostbite and something similar is happening here.

Homeowners, those with an income and typically older, generally seem to be doing better. They are making the most of lower expenses to pay down credit cards, debt and even save a little.

However, those with less stable income, still on furlough, typically younger, for them not much has changed. And, whilst record government support has kept arrears in check, this is reducing and impacts are gradually flowing through to individuals, the economy and the banking sector. With insolvencies starting to rise again, we could be starting to see some of this already.

May the 4th be with you

This week also marked another milestone, the UK Financial Services Bill (now Act) passed into law. Routed in updating regulation post UK leaving the EU, it also brings lending activity such as Buy Now Pay Later under greater regulation and amends wording for the debt respite scheme (breathing space).

Speaking of Breathing Space (debt respite), we are almost there. May 4th, next Tuesday, is go-live.

With the prospect of many people struggling as the result of the pandemic, it does seem legislation that is extremely timely. The volume of uptake and associated impact on lenders on this we will need to wait and see.

Undoubtedly however implementation challenges are more complicated than they may first appear though. I am expecting furrowed brows in some areas next week, as the implementation details become apparent.

Return of the office

On one hand, I am starting to hear of firm dates to return to the office (albeit part time, hybrid working) starting to trickle thorugh. On the other hand I have also been hearing anxiety about any return.

It is hard, amidst all the agendas in the media, positioning opinions on why we should return, to see what people actually think.

No doubt it is different by sector, but for many folks flexibility, short commute times and the trust given by employers to employees has been great. People have stepped up to the plate and delivered. Productivity has increased, albeit with an impact to creativity.

The clear desire is trying to keep the good bits, what has worked well, yet regain some of what we lost.

Cakeism maybe, but this a point outcomes such as a forced return in the office, only to still be on video calls all day, or a partial return (some of the team still at home) combined with a continued expectation of extra hours delivery despite losing time again commuting, will not be well received.

All we can say at this point is more change is coming. We will need to watch closely as it evolves and be ready. Planning for changing employee, customer expectations and leveraging all the new technology we have just installed is going to be important. Important for customer retention, employee retention, satisfaction and making the most of the situation to actually transform business processes, rather than return to old ways. Still plenty to think about.

It is a bank holiday in the UK next week, hopefully, the weather holds. Have a good long weekend everyone…

This week I had the pleasure of chairing a couple of events, namely the Lending Technology Think Tank with Credit Connect and a webinar on Breathing Space with Aryza.

Lending Technology Think Tank.

From the discussion, there was undoubtedly a sense of thinking about moving on from the pandemic. However also a feeling that things have changed, permanently in some cases. New habits have been formed, it seems it will be slightly different moving forward and we need to adjust.

A write-up of the sessions will be coming out, together with the opportunity to watch again. It will be on Credit Connect. I will also link to this here.

In the meantime here are some top level thoughts from the discussion (expanded from my linkedin post).

• The pandemic, which has had significant impacts on customers and lenders, will likely inform future product design thinking and processes going forward too. Some of the features and thinking we had to build during the pandemic will likely be expected, both by customers and regulators alike.
• Data has been undoubtedly crucial to understand what has happened and will be important to make risk assessments going forward. However it is not just about more data, but also about ensuring there is the capability and skilled knowledge on the team to know what to do with it. The sense was to invest in this now.
• Technology investment has been high the last 12 months. We have all been implementing digital capability. However, most of this has been reactive to the situation at hand. We will likely now move into a more planned and proactive phase, but there will be likely a slight hiatus to build up investment funding first. A more fundamental upgrade of technology capability is underway.
• The pandemic has changed some customer characteristics in the data we use to make lending decisions. Behavioural history pre 2020 is different to 2020, and may change again in 2021. We are entering a more polarised world for affordability. All of this flows through to credit risk models and lending. More data can help, but it is an area of focus we will now need to understand.
• Once the new environment stabilizes, there will likely be new lending opportunities. New segments and new data to identify and risk assess segments will be identified (gig workers, openbanking and students were all discussed).
• Credit Risk Models have been impacted by COVID. We have had plenty of predictions, but limited actuals to actually check if new predictions now being made by models are right. It is a waiting game to some extent.
• Machine Learning (a term unpopular with some – Statistical Learning was better) is an opportunity, however it must be balanced with explainability.
• Transparency, bias and ethics are all also going to be important. As we increase the amount of data and develop more and more complex models tracking bias, understanding outcomes become increasingly difficult. It is however an area of increasing regulatory and political focus.
• Open Banking has seen good uptake, accelerating in the last 12months. This is up to 80% on Acquisition, although it varies significantly by sector. The key to adoption was seen as ensuring there was utility for the customer, making their life easier.
• The sense was open banking is just the starting. Once normalized there are more opportunities. Opportunities for more nuanced lending, and also from the FCA paper, there is the possibility that the 90d rule could potentially be removed too.
• On Open Finance it is likely this will be extended to the banks first (before insurance etc)
• Also on Open Banking, it does seem that some customers will likely ‘game’ the system in order to meet criteria for loans. Ie no gambling for 3-6 months, knowing it will be monitored. This was mentioned to be no different to existing application forms, although obviously with more data involved. There is however some potential for Fraud.
• Lastly on Fraud, Digital identity is in development. This may help fraud, but we also need to think about inclusion

‘What Lenders need to know about Breathing Space’

In this shorter session with the team from Aryza and Experian we discussed the implications for breathing space for lenders. The implications have been discussed and most people on the call felt they were ready.

We have been discussing this and prepping for this for a while now. However with a May 4th start date it is now only 2 weeks away. Amazing how things creep up on us.

There are a few good resources out there on this. Drop me a note if you would like me to send you some.

All in all an interesting week and couple of sessions. Time to get a bit of rest over the weekend… have a good weekend everybody

Other key stories for the week

• Why Use Muscle? Big Data Can Collect Debt
• Primark shopper numbers ‘back to pre-Covid levels’
• Bank of England to consider digital money plan
• NatWest will refuse to serve business customers who accept cryptocurrencies
• Call centre firm tells UK homeworkers they will not be watched with webcam
• Top HSBC executives to hot desk after losing private offices
• Quarter of BNPL customers can’t afford to pay household bills
• One in ten finding it difficult to pay for housing
• UK has a 6.2m ‘Covid employment gap’ to fill
• Personal insolvencies rise by over 60%
• Workers Want to Stay Put in Home Office
• Card spending falls to its lowest point since the first lockdown