The COVID-19 pandemic placed immense pressure on the nation’s finances, with millions of individuals and thousands of businesses seeking additional support – either in the form of Government grants, tax relief, the job retention scheme or payment breaks.

Here, Andy Taylor, CMO at Aryza discusses how the end of these initiatives could lead to a surge in personal debt and some of the ways the industry can work to better support consumers finding themselves unable to keep up with their monthly repayments. 

The economic impact of the pandemic

According to the Office for National Statistics, those with a household income under £10,000 were around 60 per cent more likely to be furloughed during the pandemic than the general population.

Employed parents were almost twice as likely to report a reduction in income than the general employed population, although this gap did gradually narrow throughout 2020 as schools largely reopened. Parents were also less able to afford either a holiday or an unexpected expense than non-parents, and they were roughly 50 per cent more likely to have difficulty meeting their usual expenses.

By the end of 2020, nearly 9 million people had to borrow more money because of the pandemic and the proportion borrowing £1,000 or more had increased from 35 per cent to 45 per cent since June, 2020.

Job losses

Despite this we are yet to see a wave of job losses, with CIPD predicting that the Coronavirus Job Retention Scheme (CJRS) had helped avoid over 4 million redundancies.

The same study, undertaken in May, 2020, found that without the CJRS, over half of employees who were furloughed could have been made redundant, equating to 14 per cent of all UK employees or 4.2 million jobs across the UK.

When asked about the importance of the CJRS, 60 per cent of employers said extending the scheme to September 2021 was the single most important labour market policy intervention the Government could make to support them.

However, as September approaches experts are predicting a wave of redundancies as many businesses struggle to cope in such challenging economic times.

According to one study by data insights company Red Flag Alert, 26 per cent of the 741,285 companies making claims under the CJRS are showing signs of extremely poor financial performance.

This means 193,721 companies are at risk of going out of business, with 12,600 of these predicted to fail within six months of furlough ending, leaving almost 275,000 people unemployed.

The industry must work to ensure those finding it difficult to manage their regular repayments and monthly outgoings are well supported should they face a sudden drop in income and fall into arrears.

Digital journeys to help understand affordability

It is important to remember that job losses are likely to be felt across all industries – impacting people who have never faced financial hardship before. For these individuals it can feel especially overwhelming and more and more we are speaking to businesses seeking to deploy new technology to streamline and simplify processes for the end-user.

By digitally collating information provided by the consumer and the lender, along with Open Banking data and credit reference information, Aryza Recover creates a unique view of a consumer’s financial position in just a few simple steps.

Once collated, individuals can easily view the repayment options available to them and depending on what the affordability check calculates, decide to continue with their existing journey or consider other options such as payment breaks or revised payment plans.

The system calculates affordability and disposable income by running a range of strategies across multiple products – allowing different rules and outcomes to be applied to each one, before configuring the outcomes.

Once this process is complete, customers can access an overview of their finances and a summary of the actions they have chosen. This dashboard includes details of their repayment plan, opportunities to switch and save on bills, and a handy benefit checker designed to highlight the benefits on offer to increase disposable income.

This functionality will be especially useful for those unfamiliar with the debt management process, or those reluctant to speak to an advisor in-branch or over the phone.

Assessing vulnerability and risk

Having joined the Vulnerability Registration Service (VRS) back in April, Aryza is now offering all lenders using the Aryza Sentinel Loan Management system access to the newest VRS product, VRS Aware.

VRS Aware provides ongoing visibility of vulnerability, rather than a perspective at one point in time, alerting organisations when a vulnerability occurs or changes. For organisations, being alerted instantly to the fact there’s been a shift in a person’s circumstances can ensure any further communication or action is appropriate and supportive, without causing additional distress.

This tool will be especially useful as support schemes come to an end, ensuring that a job loss or sudden drop in income does not result in mounting arrears. Instead, lenders should work to ensure that consumers are on the most suitable and sustainable repayment plan for their circumstances.

With household debt likely to rise to above pre pandemic levels over the next 12 – 18 months, there is a real opportunity to utilise technology to support consumers. At Aryza, we are committed to developing user-friendly digital solutions, able to remove much of the over-complication and ensure every consumer can access the support and guidance required.

To find out more about how the Aryza suite of products could help your business and your customers, contact us here.