Banks need to take a closer look at individual customer trends to spot the first signs of debt
UK banks must use IT to tackle debt crisis
/v3-uk/news/1975913/uk-banks-it-tackle-debt-crisis
16 Apr 2008, Ian Williams , V3
Many UK banks are ill-equipped to comply with new codes on consumer debt management, according to technology consultancy Detica.
The new UK voluntary Banking Code puts the onus on banks and building societies to provide more support to consumers heading into debt problems, including identifying and contacting those who may be at risk.
However, Detica believes that inefficient and outdated management and analysis of customer data means that the majority of UK retail banks are not equipped to identify these customers under the new requirements.
"The stream of recent regulatory requirements means that banks actually have a great deal of data in place to build an accurate profile of their borrowers," said Maggie Scott, executive manager at Detica's Financial Services unit.
"Historically, however, banks have only used this data to assess their customers' financial circumstances when applying for credit."
Scott warned that the challenge now is for banks to apply this intelligence to identify financial stress and to get in touch with customers to discuss ways to support them.
"If banks cannot do this, consumers will not benefit from the aims of the new Code and we risk debt spiralling further," she said.
Detica has urged banks to take a closer look at individual customer trends to help identify those who are falling into debt before it becomes a serious problem.
Scott pointed out that credit cards, for example, are often the first to show signs that a customer is getting into difficulties.
A customer increasing cash withdrawals, while reducing monthly repayments to a minimum, is a strong indicator that he or she is struggling to meet their financial commitments.
"The new Banking Code should compel banks to look again at their responsible lending policies and how to translate them into action," concluded Scott.
"The benefits are twofold: customers receive the support they need before it's too late, and banks can reduce the level of debt that turns bad."
© Incisive Media Investments Limited 2010, Published by Incisive Financial Publishing Limited, Haymarket House, 28-29 Haymarket, London SW1Y 4RX, are companies registered in England and Wales with company registration numbers 04252091 & 04252093
Do you agree?
I'm glad
The banks may or may not be responsible for our spiralling debt problems (I blame the mass media)but they are the ones with the best resources to resolve it. At the moment they are only a part of the problem and if they took a longer term view they would see the benefits of assisting their customers.
Posted by Tim, 17 Apr 2008
Bart Patrick, Head of Risk, SAS
Detica do indeed have a point that few banks have the capability to model consumer ?stress?, and they also have good grounds to state that the sort of techniques used for consumer credit risk modelling could be retuned to help predict the likelihood of a customer going into financial difficulties.
How? Banks hold huge amounts of financial information, across the entire spectrum of customers, those who are good, bad and ugly in terms of financial risk. Based on this rich seam of data, it is possible to understand which customers may go bad before they do using the same predictive analytic techniques used in credit scoring.
This leaves a whole range of options open to banks and consumers for preventative measures to be implemented whilst minimising the numbers of IVA?s and bankruptcies which are inevitably bad for all parties.
Posted by Laura Burnell, 17 Apr 2008