Improving consumer credit A deep dive into the FCA’s recommendations for Fintech

 It's changing rapidly-- with fintech products becoming more easily accessible than ever before. While this benefits many consumers, it can also have an impact on consumers who are more vulnerable or who have been in financial difficulties before.

The fintech news Review revealed that changes need to be made to the way in which consumer credit is regulated to improve outcomes for customers. Areas such as affordability assessment, forbearance and levelling the treatment between different types of financial products are high on the agenda for change. In addition, regulating products such as BNPL will help to provide more transparency throughout the industry and help lenders to provide the best outcomes and products for customers.

Let's take a deeper look at the review and the recommendations the FCA have put in place to help improve consumer credit in the future.

A quick recap: How should credit providers support those most in need of credit?

Rising costs of living and economic pressures from recent events such as Brexit, the coronavirus pandemic and the impact of the Ukraine war means that UK consumers are facing more financial pressures.

As a result, more and more consumers are getting into financial difficulties and relying on help from a variety of credit products, both regulated and unregulated. And that's why the financial technology new is so crucial in outlining how important it is for credit providers to support borrowers who are most in need of credit.

1) Understand how consumers are using products and services

More consumers are accessing credit but the costs of providing and obtaining it will make it less affordable for those who need it.

 

Understanding customer current use of credit products and services allows credit providers to offer the best products to suit their needs and prevent them from falling into further debt. Moreover, credit providers need to give their customers clear and transparent information about the products and services available so they can make the right choice.

2) Recognise vulnerability

With many more consumers falling into financial difficulties, organisations must be able to recognise a vulnerable customer and have the tools available to deal with their specific needs.

Vulnerable customers are often most in need of credit but are unable to access it so credit providers having a better understanding of what they're spending and how will allow them to offer better crypto news. In recent news there's a lot of coverage around consumers using credit cards and other methods to pay off their BNPL loans-- which means individual affordability statuses provided by Bureaux will be inaccurate and will lead to a wave of additional people in debt and late identification of vulnerability.

3) Provide help to consumers who are unable to access credit

For some consumers, high-cost credit products allow them to get instant credit But it's risky for all involved as they may not be able to afford to pay it back. Again, understanding these customers and being able to offer tailored support and products can help to prevent them from falling into a cycle of debt.

How credit information and Open Banking can help to improve consumer credit.

And this is where innovations like Open Banking come in.

Before Open Banking, it was difficult for credit providers to get a clear view of how consumers were spending due to gaps in transaction data and a lag in receiving it. With it, credit providers have a clearer view of financial behaviour and a more detailed view of their current financial situation.