THE FAT HEAD AND LONG TAIL OF FINANCIAL STRESS IN AUSTRALIA

Like a wet El Nina winter that just won’t go away, the commentary and chatter around household financial stress and hardship in Australia keeps coming.

Despite the levelling of inflation and some early green shoots of economic recovery, there is now no question that the Long Tail of credit affordability and household financial stress will be with us for some time to come.

Even though the RBA have paused their sharp increases in the cash rate, the real impact of the previous 12 rate rises is yet to hit. Roy Morgan is reporting that 1.5m Australians remain at risk of Mortgage Stress as the perfect storm of cost-of-living increases coupled with a huge jump in mortgage payments hits the family budget.

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The so called ‘Fixed-Rate Cliff’ is now clearly a significant issue for many households across the country and isn’t going away in a hurry. ASIC have recently taken a pro-active stance and written to 30 of the biggest lenders to ensure they have the ‘right arrangements in place to respond to requests for assistance from customers experiencing financial hardship, and to work constructively with them to find a suitable solution’

This is an obvious shot across the bow from the regulator and a further sign that things will be getting worse before they get better. But what is really happening? What are the ‘right arrangements’ and ‘suitable solutions’?

The evidence is clearly showing that a lot of Australian lenders are not taking vulnerability and hardship seriously enough. As well as putting lenders on notice about improving their processes, ASIC are also taking one of the ‘big 4’ banks to court over their lack of attention and due process in managing a number of hardship cases.

There’s obviously a disconnect somewhere.

Nobody wants any customer entering hardship. It’s costly for the bank, devastating for the customer and has significant social and health impacts for the household.

There seems to be so much noise and coverage on the problem, but very little on any workable solutions. What about prevention being better that cure?

The blunt instrument of opting to re-finance and hop into bed with another lender is the only option available to some customers. In some ways these are the lucky ones. Other households are trapped in the so-called ‘Mortgage Prison’ as they do not have the income or cash surplus to qualify for a new loan even at a lower interest rate.

And we’re still in the Fat Head phase of all this. The Long Tail hasn’t even kicked in yet.

?Re-thinking through the data lens

What has changed since the last spike in mortgage stress seen during the GFC 15 years ago is the availability of customer data and the ability to utilise this for improved customer engagements and decisions.

Through advancements in data access through initiatives like the Consumer Data Right (CDR), and developments in data analytics, enterprises across all verticals can now use consented data sets to understand their customers financial position in real time. This includes predicting with high levels of accuracy whether they are heading into a vulnerable situation which might in turn then lead to Hardship.

?And this is not just relevant for banks. Defaults and collections activities are rapidly rising across all sectors. Insurance, Local Government, Utilities and Telco are all in the long tail as well.

Data for re-personalisation

Data-led solutions enable the ‘re-personalisation’ of customer engagements and interactions as they can assess each individual’s unique situation when it comes to their financial health. Thus, as ASIC stated in their letter to the banks this week, allowing the enterprise to ‘tailor solutions for customers where a standard one-size-fits-all approach may not meet a consumer need’

In a situation of potential mortgage stress, the lender can predict how this will impact behaviour and engage the customer BEFORE they hit the wall, or the customer is lost to a re-financing event. Works for the bank. Works for the customer.

Interestingly, consumers get this as well. 60% of Australian borrowers now believe that their bank should monitor their finances pro-actively to help prevent vulnerability and hardship. So, the data is accessible, the solutions are there, and customers are crying out for help.

If the lenders can get this right, it will also open the floodgates for other more personalised solutions consumers now want and expect.

Before you have to take the last resort and call the hardship helpline, how would you feel if your bank reached out with a solution to extend your fixed rate as they knew you’d lost your job or had to take out a new credit card or BNPL solution to meet your fixed expenses?

Or if your super fund got in touch to review your investment profile as they could see in your data you had just changed jobs, got a promotion, or moved house?

With secure, consented data access and intelligent analytics, all of these and many more personalised use cases can be offered, helping to improve levels of engagement and reverse declining service provider loyalty.

The continuing reality of the cost of living crisis and mortgage cliff is as much of an opportunity as it is a challenge. The ball is now in the court of the enterprises that serve us to think differently about how they engage with their customers and get to know us again in more meaningful ways.

If we’re in an El Nina winter, the more umbrellas we can be offered, the better.

MogoPlus is a provider of Data Analytics and Insight solutions which enable enterprises to make critical customer decisions across various use cases such as lending and hardship.

More information can be found at www.mogoplus.com