Look to your left. Now look to your right. Statistically speaking, at least one of these people is currently financially vulnerable. 50% of UK adults display one or more characteristics of being potentially vulnerable, according to latest FCA statistics.
While it may not always appear obvious on the surface, and though some of us may not be aware of it, we are all on a spectrum of financial vulnerability. Of course, there are degrees of extremity. The worst examples are heartbreaking cases of deceit and neglect: a fraudster exploiting the trust of an elderly Alzheimer’s suffer for £15,000; scam pension schemes taking £13.7 million from their victims.
But beyond extreme cases, there is an ocean of grey area. Depending on circumstance, financial vulnerability could include all of us. Even the subprime crisis that led to the 2008 financial crash could be viewed through this lens; it involved banks granting loans to people who couldn’t afford them.
The nuanced cases are what banks need to get better at identifying when assessing a customer’s potential vulnerability. Not only for our safety, but also for our financial literacy and financial wellbeing. The demand for better, more personalised financial guidance from banks is increasing; four out of five students say they are not taught enough practical money lessons in schools.
With post-Brexit downturn on the horizon, and news of the latest economic blow courtesy of coronavirus, we may as well call a spade a spade: the economic forecast right now isn’t looking too rosy. Wages could well stagnate, and the cost of living may rise. Many more people could indeed slide further up the financial vulnerability spectrum and be in need of better guidance from their payment providers.
Vulnerable people don’t benefit from blocked transactions and invasive phone calls from bank operatives; they benefit from frictionless transactions and intelligent recommendations. Knowing when and how to contact potentially vulnerable customers is key, and that can only be achieved at scale with a decision-making system capable of identifying the right protocol for the unique contexts of each customer.
For any banks that fail to provide this, there are a host of challenger banks already turning heads with superior personalisation. This is not just about protection – it’s about banks being able to offer the most tailored services possible by understanding a customer’s unique context.
Current identification methods are too wide
Financial vulnerability is more nuanced than the identification systems and criteria that banks are currently using. Take, for example, a recently widowed spouse whose partner had been in charge of finances. There may well be compounding factors that should all accumulate into a bank’s assessment of vulnerability: a lack of financial literacy; age; any possible illness or disability. This is what we call compounding vulnerability. This person, likely to be under great stress, needs to make the transition from a joint account to a checking account. The bank has a duty to check for vulnerability – as all banks do.
But what banks are missing is that they also have a duty to relieve, rather than add to, this recently bereaved person’s stress levels.
Rather than asking a series of questions ranging from date of birth to net income, there needs to be a system in place that asks fewer, more explicit questions to get the information it needs to assess the level of vulnerability of the customer.
Yes, identification processes are currently in place, but they are not refined enough to be able to remove stress and friction from customer interactions. We see the same problem with credit card fraud; companies use linear automation tools without the nuance to identify the ‘grey area’ scenarios, and end up flagging far too many cases.
This trend was emphasised in the Scotsman’s Talking Money report: “the industry thinks it’s fair – but it’s also very wide. There could be actual vulnerability, where a customer has the inability to do certain things day-to-day, or it could be transient, like someone losing their job or being unable to work due to illness, for example. A lot of banks place their focus on debt management rather than making things simpler and accessible for customers.”
Machine intelligence can identify the full spectrum of vulnerability, and tailor services accordingly
Vulnerability is context-specific and rarely black and white. The kinds of linear technologies being widely used today to handle potential vulnerability cases can’t calculate this – but people can.
Banks provide specialist training to staff to identify different customers’ wants, needs and vulnerabilities, and to do so with nuance. This is specialist expertise that could find its most effective use in identification systems.
All of which means that we need to find a way to capture the human understanding that people possess, and translate it to technology.
Whether you’re 10% or 40% vulnerable, your payment provider should know what’s best for you.
For a deeper dive into humanising our financial services, I recommend the latest Rainbird eBook on financial vulnerability, in collaboration with Ernst & Young and the Royal College of Arts.