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By Daniel Sawyer, Risk & Regulatory Advisory, KPMG

Falling into arrears can be an incredibly difficult time for a customer, and they often look to their lenders as the experts to help them through it. In response to the cost-of-living crisis and increased regulatory expectations, we are seeing firms starting to take action to ensure they are best serving their customers and delivering good outcomes.
 

The combined impact of rising prices and high interest rates have put many households under pressure in recent years. This has been particularly dramatic for mortgage borrowers rolling off fixed rate periods set during a historically low-rate environment. 

The cost-of-living crisis has also coincided with increased regulatory scrutiny on arrears and collections practices. For example, the FCA’s ‘strengthening protections for borrowers in financial difficulty’ policy came into effect on the 4th November 2024 and the regulator has published a number of Final Notices in 2024.

On top of this, firms are also facing into increased levels of vulnerability, changing customer behaviours, and a shift towards omni or multi-channel engagement.

Offering customers more channels to get in touch, and empowering customer support staff with the tools to best help those that are facing financial difficulties will improve future outcomes for many households.  

Research has shown that customers are often put off engaging with their creditors out of fear. It can be difficult to pick up the phone and talk to a stranger about the problems they are facing, particularly when they aren’t sure how the creditor will react. 

Offering digital channels and automating elements of the arrears and collections journey can provide a different mechanism for these customers to engage, and create opportunities for operational efficiencies. Some example ‘use cases’ are provided below:

The best value will be delivered when the above are paired with customer-facing colleagues who have the right tools, guidance and support to help customers across both digital and traditional channels. 

Industry best practice

Those best placed to weather the myriad of pressures impacting arrears and collections to deliver good outcomes for their customers (and their firms) will be those who can:

• Identify customers at greatest risk and tailor contact strategies and communications based on customer behaviours.
• Have an empathetic, appropriately skilled and trained workforce capable of dealing with the most complex customer circumstances.
• Remove friction from rigid processes and make arrears and collections as smooth as possible.
• Offer the right forbearance, at the right time, and ensure customers are informed and able to make effective decisions, even when under high stress.
• Regularly test and monitor their outcomes, using data to drive decision making and inform actions.

Find out more: Read more about the challenges facing firms and the actions to take on .

This article was first published in Society Matters magazine.