Finance Fear – what can banks do to help their customers?
It’s no secret that these are tough times for banks and their customers. Rising interest rates and the increased cost of living mean many people have used up their savings, tightened their belts and are still facing real hardship. So, how can banks help?
While policymakers are making efforts to control inflation, the European economy is in a weak state. Intrum’s research shows that two in three banks and financial businesses are concerned about rising defaults on debt repayments over the course of this year.
With the economic outlook bleak, the knock-on effect for the banks in terms of bad debt could be significant. Against this unstable backdrop, lenders face the challenges of managing their exposure to risk and seeking new opportunities.
Supporting customers to reduce bad debt
As a credit management company with a long legacy of working with people in problem debt, Intrum knows there is much that banks can do to support their customers and reduce their own bad debt risk. These times can be used to help customers reset their finances, learn new money management skills and continue as loyal customers of the organisation in future.
During 2022, we helped our customers resolve their financial challenges in a fair and ethical manner, with around four million customers becoming debt free with Intrum. We know it is possible for people to get to grips with their finances and turn things around, even in difficult times, because we do this every day.Andrés Rubio, Intrum President and CEO
These efforts are often a welcome relief to people struggling. Many consumers are already working hard to reduce costs, set budgets and change their financial habits. Around half say they are more likely to set financial targets as they manage their household bills and try and save for the future.
Banks are ideally placed to communicate tools and tactics consumers can use, helping them manage their money in difficult times.
Improving financial education is fundamental
Some consumers are finding it difficult to understand the current economic situation. The low interest rate environment of the past few years means it has been some time since these challenges were faced and many have never been through a similar crunch.
Financial literacy also impacts consumers’ ability to cope with the crisis. Only one in four Europeans feels they have received an excellent financial education and are confident managing even complex financial issues. A third say they either had very little financial education or are not confident in managing their money.
The cost of this is already being felt. Intrum’s research shows that those with poor financial education are more likely to miss a debt repayment than their financially literate peers.
How can banks and financial businesses help?
Banks are ideally placed to help boost economic understanding and financial literacy. They can help by:
Long-term resilience – saving for the future
In the long term, banks and financial businesses can also help encourage customer resilience by supporting saving through the use of simple, flexible and competitively priced products.
Intrum’s research shows that women save differently to men – more often putting aside money for emergencies instead of long-term goals. Given this, there is an opportunity for the sector to do more to understand what is preventing women from saving, to help them put away more for the future.
“Banks are facing challenges but there are solutions out there to help,” says Matteo Saviotti, Banking & Financial Services Industry Manager for Intrum. “From putting strategies in place to increase capacity and cope with short-term spikes in volume, through to more structured outsourcing, carve outs and joint ventures that help rehabilitate consumers in financial difficulty.”