A few months ago Jonathan Davidson, executive director of supervision for retail and authorisations at the Financial Conduct Authority (FCA) said that a worrying number of householders may be “in too deep” with their borrowing.
But how deep is too deep?
It’s a difficult question. But it’s definitely not a “how long is a piece of string” kind of question.
I was thinking about the FCA’s message when I spoke at the recent EY conference, Technology & Data in Financial Inclusion. In the course of discussion the statistic was quoted that according to research from the University of Birmingham in 2017, 11% of the population are not able to find £200 at short notice. These people could be just one domestic catastrophe away from losing their home. They are in such a precarious financial position, that a lengthy illness, a divorce or even a car accident would be enough to see their lives hurtle down the path to repossession.
That’s Too Deep
But if we are going to help to build a “safer financial world” – the reason I come to work at Castlight every morning – we need to use our technology to help lenders support vulnerable customers. We need to make sure that the water is nowhere near the top of their wellies.
Or to be more precise and nautical – we need a Plimsoll Line.
CaaS, our Categorisation as a Service tool can do exactly that. It can draw the Plimsoll Line – a line over which the ship or the borrower is overloaded and in too deep.
By using open banking technology to access a customer’s transactional information, CaaS categorises income and expenditure, across any number of accounts into over 150 categories, summarising income streams, credit commitments, essential costs and discretionary spending. The customer achieves a 3D picture of their finances, including the pressure points, areas of vulnerability and projections of problems before they happen. And then, because the lender has an unprecedented level of information, he is able to provide insightful advice and financial tools to ensure that an individual customer isn’t in too deep.
For one customer, an analysis of the CaaS report may show that “too deep” is the loan on a second car. For another customer, it may just be that reducing spending on digital subscription packages would provide enough of a financial buffer.
A report earlier this year by the Institute for Fiscal Studies on behalf of the Joseph Rowntree Foundation reported that borrowing on credit cards, loans and car finance deals has returned to levels unseen since before the 2008 financial crisis.
But its not 2008 and in 2018, we are pleased that a number of the forward looking High Street banks are working closely with us, implementing CaaS with their customers, so that they can take appropriate action to ensure vulnerable accounts and customers don’t get in too deep and don’t lose their homes.
I like the allusion of CaaS as a Plimsoll Line – a reference mark located on a ship’s hull that indicates the maximum depth to which the vessel may be safely immersed when loaded with cargo.
But here’s something I didn’t know. The depth varies depending on the ship’s dimensions, type of cargo, time of year, and the water densities encountered in port and at sea.
Just like our CaaS tool for assessing financial vulnerability, the Plimsoll Line takes all relevant factors into consideration.
Too deep is different for every person – and for every ship too it appears!