Last week was the Credit Strategy – Credit Summit, a smorgasbord of credit and collections related topics.
In our daily roles there is often intense focus on the collections and recoveries process itself. However, this week, in particular, is a nice change, allowing a step back to reflect on some of the wider economic and political influences impacting the industry.
With perspectives from three groups, what I will call the economists, the politicians and the industry, a couple of items stood out.
With some leading economic commentators and survey firms, this session really helped to set the scene. Some of the details we know, some were new, however the consensus was that we live in times of change. Economically we have been living in unusual times and, just like the recent snow which looked so calm and serene until it started to melt, when normal conditions return it is only then that the full impact of the events become apparent … a return to long term ‘normality’.
- Economic growth: The UK is currently lagging in terms of growth (US 2.5%, rEU 2% and UK at 1.5%). The view was that the UK has not been investing in productive capacity (in part due to the uncertainty generated from Brexit).
- Interest rates: These were expected to rise, probably to around the 2.5% range. This will be a shock to some consumers and businesses who have become complacent with low rates and ‘easy money’. Higher rates will improve the profitability of the banking sector though and we will need to watch for impacts in the loan space. However, with the high percentage of fixed rate mortgages, it is expected this will take time for the full impact to flow through to the mass market and therefore the economy.
- Data and the data economy: This has been a big theme over the last few years, driving significant investment in business, in particular in the areas of Security, Fraud, Analytics and CRM. AI is an emerging theme, and expected to be disruptive, especially to the call centre business. However, what was also interesting was the levels of perceived trust consumers have with businesses; banks are trusted, however social media and even some governments and telecommunications companies were not. Still more to do in this space and with GDPR around the corner, this trend is expected to continue.
- The elephant in the room: Brexit was the topic no one really wanted to talk about, it and its impacts were avoided. However, IPSOS data did point to 69% of businesses not confident that a deal will be a good one for business. Certainty is what they crave going forward.
A couple of leading opposition politicians were available for this discussion, although unfortunately no one from the government was able to attend.
- Concerns were highlighted around the impact of short term lending and its impact on some consumers. This was quoted as ‘borderline illegal at the extremes’.
- The impact of universal credit and student loans were also both mentioned. Student loans should be thought of as a tax, rather than a loan, it was pointed out. Persistent debt and giving people a chance to get out of debt was a topic of conversation.
- Overall there was some concern that the level of borrowing has been continuing to increase. Although the system is more stable than in 2008, an amber light should be flashing, especially with car finance funding 86% of all new car purchases.
The industry reaction was somewhat muted, typically taking a line between what is possible in the economy and allowed by the politicians. However, a couple of thoughts and discussions were evident.
- Persistent debt and financial difficulties: This remains a theme, and many tools are being successfully put in place to address these issues from a collections point of view. However, the area is one where more effort must be made around the sustainability of the initial lending decision.
- Data protection and GDPR: Clearly an emerging theme. Readiness for GDPR is still rather nascent and centrally controlled. It is imperative that this is rolled out and operationalised, and links heavily with issues of transparency and trust within the consumer base.
- Automation and AI: Artificial intelligence (AI) in particular is an emerging theme and viewed as having potential to significantly automate processes across the credit lifecycle. It is already being used and tested in some banking scenarios, with a split between those that see this as cost elimination vs those that are seeing it as ‘service augmentation’. Watch this space; it is an area of opportunity.
- Brexit: This is inevitably a significant change across the UK. Although details are still unclear, it is important to start to plan and have contingency plans. For example: considerations if the UK becomes a third country to the EU, procedures for customers outside the UK, processes if assets are taken outside the UK … all to be designed.
Overall a very interesting and thought-provoking exchange of ideas. A thank you to the Credit Strategy team for running a great session.
At Arum we are an independent consultancy within the Collections and Recoveries space. If you need help exploring, designing and implementing your response to some of the ideas discussed here, please contact us or let us know. We have specialist expertise on hand to help you get it ALL done.
Chris Warburton – Lead Consultant