Help your customers: 5 ways to deal with debt

The cost of living has skyrocketed in the early months of 2022. In the UK, the Consumer Prices Index (CPI) — the primary measure of inflation — hit 7% in March 2022, the highest rate since March 1992. CPI also climbed to 8.5% in the US, its highest rate since 1981. In addition, the annual inflation rate in Australia surged to 5.1% in Q1 of 2022, marking the highest reading since the introduction of the Goods and Services Tax in the early 2000s.

Rising inflation and cost of living increases are due to a number of factors, including the war in Ukraine, which has affected supply chains and sent energy prices soaring. Throw in the effects of the pandemic, and customers are starting to feel squeezed from all sides.

In an effort to treat customers fairly, regulators, such as the Financial Conduct Authority (FCA), are asking lenders to ensure they are lending responsibly and steer customers away from inescapable debt.

This article will look at how the financial climate is creating an increasing “buy now, pay later” culture. With costs increasing in all areas of their lives, people will become stuck with debt. How do they choose what bills to pay? What are the ways to deal with debt?

We’ll explore how financial institutions can guide their customers through these tough times and ensure they can still pay their way.

The “buy now pay later” culture

Helped by financial concerns and lockdown boredom during the pandemic, buy now pay later (BNPL) deals have gained a new lease of life over the last couple of years. Fintech companies such as Klarna, Laybuy and Clearpay have made applying for credit easy while checking out at your favourite online store — with the ability to delay payments with zero interest just a couple of clicks away.

This increased BNPL usage is on top of a culture of credit card debt and car leasing, plunging consumers into a cycle of monthly payments, and higher overall living costs.

A credit culture can harm consumers. BNPL services in particular make it easy for shoppers to buy more than they can afford, and because the market is unregulated, critics worry that people are taking out credit they wouldn’t otherwise be able to get.

Financial institutions can play their part in helping customers make sensible choices and deal with their debt.

How companies can help their customers: 5 ways to deal with debt

1. Focus on financial advice

A key feature of BNPL culture is its popularity amongst young people who may not completely understand how to avoid debt.

Financial institutions can educate customers on managing debt responsibly as an authority on the subject. Your customers trust you with their money, and they look to you to provide help with how to manage it correctly.

It’s important to make this advice accessible to your customers, especially young people who are more likely to use apps than head into a branch or ring a helpline. Having multiple different connection points is vital — from chatbots and online FAQs to WhatsApp and social media accounts, it’s never been easier for a customer to get in touch with businesses. However, don’t forget human-to-human contact and the power it has to enhance customer relationships.

Unfortunately, financial services are currently suffering with staff shortages, so it can be difficult to offer all these contact options to your customers.

To fill the gaps in recruitment in the meantime, you can look at your options for outsourcing debt advice and customer service roles to a highly qualified remote team. Offer a joined-up approach to customer conversations and deliver a high-quality customer experience regardless of channel or where your advisors are located in the world.

2. Prioritise engagement

If a customer has reached a difficult situation with their money, such as not being able to manage their bills, it’s vital to be proactive and interact with them on good terms. Many people can disengage and not realise the support that is out there from charities and even their debtors in some cases.

ReachOut, a new service from Sigma Connected, uniquely addresses the challenges of low engagement and low awareness of available support. ReachOut offers customers struggling to pay a real lifeline of support, raising awareness of initiatives within your organisation and with external charities that are available to help them.

As a confidential and impartial service, one that isn’t there to (and can’t) collect debt, we can hold discussions with financially vulnerable customers and help re-engage them in a safe environment. This approach builds trust, helps people better manage debts, and improves outcomes for all parties.

In fact, 2 out of 3 people we contact go on to reconnect with the client organisation and work together to agree on a positive way to resolve their debt. If you’d like to find out more about Sigma Connected’s ReachOut, be sure to get in touch.

3. Use digital tools

Using digital tools like apps and online banking, financial institutions can make money management more convenient. Digital solutions provide those in debt with an easily accessible channel for financial advice and a clear picture of their current financial situation.

Credit score apps allow people to see their creditworthiness and what has affected it, they can then assess whether they need to reduce their current credit commitments or perhaps consolidate them into a single monthly payment.

Product comparison apps let people shop for products on different online stores, allowing them to see which shop is the cheapest to purchase from, helping them reduce their outgoings.

Energy switching apps, or websites like MoneySavingExpert.com’s Cheap Energy Club, also help people cut down on the amount they spend every month, by seeing if they could make savings by switching to a cheaper deal.

Similar tools exist for mortgages, allowing people to find out if remortgaging after their introductory offer has ended will reduce their monthly payments.

Money management apps are one of the main ways that digital tools are helping people take control of their debt:

• Tully is a digital debt advisor for those struggling financially. It provides online budgeting, debt advice, flexible repayments and money coaching, which can remove some of the stress of people in debt.
• Updraft automates day-to-day money management decisions, which can help people clear overdrafts, pay off credit cards and put more money into their savings.
• Cleo is an intelligent financial assistant with its own humorous personality that allows users to track spending and save money. As well as budgeting tools, Cleo also offers cash advances for those struggling to get to their next payday.

Remember that technology can only take you so far. To effectively support customers with money struggles, it’s crucial not to forget the importance of human-to-human interaction. Providing this type of contact allows you to increase customer satisfaction by providing a personalised experience.

4. Personalisation

People in debt are often left in the dark about the repayment options available to them. Providing them with personalised communication of the best ways to handle their repayments is more empathetic and a more effective way of recovering debt.

By personalising communication to your customers, they can pay faster and more consistently with tailored debt repayment plans based on their age and circumstances.

Analytics tools and data insight technology have become commonplace in almost every industry. Financial institutions can leverage these tools to provide this more personalised service to customers in debt.

Artificial intelligence and machine learning tools in particular, can collect data from the transactions and activities of those in debt to help build a best practice model — a series of simple steps and realistic financial decisions to help them escape debt.

One advantage of these sorts of tools is that they can monitor activity in real-time and continually update their model accordingly. AI tools can help move those in debt in the right direction and ultimately speed up their repayments.

For example, if the software learns that your customer has reduced their outgoings on monthly bills, it could suggest diverting this extra money to debt reduction instead to help them get out of debt faster.

5. Invest in quality customer service

Regardless of the steps a company takes to help its customers out of debt, you will still need an effective customer service team. Thus, it’s vital to ensure you have advisors that are trained to deal with various financial situations, from advising vulnerable customers to empathetic debt collections.

Outsourcing your customer service team can be a great way to have access to employees trained to deal with these situations without finding and hiring them yourself.

Support customers with Sigma Connected

We are currently in the worst cost of living crisis of recent times, meaning debt relief services are more important than ever. The number of people seeking this advice is at an all-time high, so financial institutions need to make the process as easy as possible.

With over 10 years experience in the financial sector, Sigma is perfectly placed to help your business meet your customers’ needs. We specialise in customer services, collections, complaint management and, in particular, problem debt engagement. We can take on opportunities that other larger outsourcers can’t, often starting small and growing with our client’s needs. We’re an agile business, so we can set up quickly, start delivering and scale up or down as needed.

The support we can offer to your organisation:

• Customer services: We can speak to your customers on whatever channel you offer, including voice and digital. Our joined-up approach to customer conversations delivers a high-quality experience for both you and the customer.
• Collections: We can take on as much or as little of your collections process as you need, right up to an end-to-end solution (including the IT systems). We can look after your credit card or unsecured loan portfolio, vehicle finance, insurance premium finance or mortgages.
• Complaint management: We have the expertise to handle complaints early, before they escalate, to support your customer retention strategy.
• Problem debt engagement: ReachOut, as discussed, is for situations when you cannot contact your customers with debts. Sensitive and proactive, our approach engages with customers, builds trust, advises them of the support available to them and improves outcomes for all parties.

Although responsibility is ingrained in everything you do as a financial institution, now more than ever, it’s important to “consider any apparent cases of customer financial difficulty sympathetically and positively”, as mentioned in the UK’s FCA Conduct of Business Sourcebook.