Banks ask how Brexit will affect customers by David Grier (Chief Technology Officer)

Martin Lewis is stumped. His recent post for moneysavingexpert.com on 25 need-to-knows about Brexit saw him a little at sea. On the question of what’s going to happen with mortgage, loans and savings rates, he is holding up his hands. He says, with admirable honesty:

“Mortgage, loans and savings rates could, er, rise or fall. This is a really tricky one.”

Indeed it is. And there’s a general sense that consumers are having to work things out for themselves, reading Brexit commentators and pundits like never before, whilst keeping a careful eye on their expenditure.

However, for the UK’s banks, it’s a different matter. They can’t just suck it and see. They need to able to look at the potential risks in the market of a variety of Brexit scenarios and model how these scenarios would play out across their customer base. It is imperative for them to have a handle on exactly how a rise or fall in mortgage, loans and savings rates might play out – right across their customer base – from the most secure customer to the most fragile.

Financial IQ

Never before has Castlight’s Financial IQ tool, or FIQ Insights, been more invaluable.

FIQ Insights is one of a suite of tools developed by Castlight Financial using Open Banking technology and our categorisation engine CaaS, currently the most powerful of its kind in the UK. Built into the software is not only the functionality for categorisation of income and expenditure but also a capability to track financial behaviours and predict vulnerabilities.

If we add into this the economic forecasting data from our colleagues at Experian – the UK’s leading economic forecasting group – then you have a strong set of data for which to understand you and your customer’s exposure to an economic downturn.
FIQ Insights broadly positions every customer across a bank’s portfolio in one of 5 categories, based on an analysis of their committed, discretionary and essential spending:

1. Secure
2. Comfortable
3. Ticking Over
4. Stretched
5. Distressed

Then, with customers across the portfolio allocated an FIQ spending category, a bank or other lending organisation can model for a range of scenarios . For instance, what if a no-deal Brexit caused a 2% spike in inflation or a 1% rise in interest rates? How would this affect the “stretched” customers? Would it tip them into the “distressed” category? Could it even tip some “ticking over” customers into the “distressed” category. And if so, how many?

Of course, FIQ Insights can do so much more, drilling down into the granular data in portfolios, IQ categories and accounts.

However, for now, with the Brexit deadline looming, it’s the Brexit features that are exciting credit risk experts. I can almost smell the smoke as they fire figures, data, models and Brexit scenarios into FIQ Insights to see how best to protect their customers for both the foreseen and unforeseen.

Not so tricky really Martin Lewis – if you have the right technology!

Casting light

Strength, stability and security

BBC News ran a story recently, interviewing 30 year old Scott Tacchi from Truro, who has spent the past 18 months as a lighthouse engineer, maintaining the 250 lighthouses still in use across the UK.

 

His job takes him to some stunning locations and he has documented not only the challenging technical tasks but some incredible storms and sunsets too. It’s an interesting read and Scott Tacchi has taken some breathtaking photographs. https://www.bbc.co.uk/news/uk-england-cornwall-48339120

 

After reading the BBC News feature, I found myself thinking about lighthouses, partly because we use the image of a lighthouse as an important part of our corporate brand. Lighthouses are symbols of strength, stability and security. And although the last manned lighthouse in the UK, at North Foreland in Kent, closed its doors in 1998, lighthouses continue to do their job, as they have for centuries, keeping sailors safe.

Shining a light

Our strapline is “a safer financial world” and we chose the image of the lighthouse purposefully. Like the lighthouse, it is our job to keep our customers safe, shining a light on their financial situations and guiding them safely through choppy waters. In more extreme situations, sometimes the Castlight beam illuminates someone who is drowning in debt and needs rescue.

 

The financial crash of 2008 has often been referred to as a tsunami and millions of people were indeed dashed against the rocks of financial insecurity. How badly we needed “financial lighthouses” then – something rooted, substantial, standing guard over a perilous situation and shining a light on it.

Safeguard

I have often said in these blogs that what we do every day at Castlight is try to safeguard against the credit crunch ever happening again. That’s why we create tools for lenders and individuals to illuminate and protect people’s financial security, to ensure that no-one gives or takes on credit that cannot be comfortably repaid.

 

In his poem The Light-Keeper, Robert Louis Stevenson refers to a lighthouse keeper as “his country’s guardian”. It is not a claim he made lightly as RLS was the grandson of the famous lighthouse engineer Robert Stevenson and knew a thing or two about the family business of building lighthouses.

 

And when we at Castlight seek to create a safer financial world, to be one of the country’s guardians of financial security – it’s not a claim we make lightly either.

Give a man a fish

“Give a man a fish and you feed him for a day. Teach him how to fish and you give him an occupation that will feed him for a lifetime.”

 This familiar wisdom is attributed to a Chinese proverb, but it’s also a principle at the heart of many international charities working in the developing world as they empower local people to learn new skills and become self-sufficient.

 And of course, it’s effectively what we do as parents. We nurture our children through education and by example for around 18 years and then we encourage them to fly the nest and go it alone.

 We take exactly the same approach with our clients – although the process is somewhat quicker!

Watch them fly!

Most companies try to hang on to clients for as long as they can. But we do things differently at Castlight. We want them to be able to go solo as soon as possible. We like to nudge them out of the nest and watch them fly!

For us, a successful client relationship is when one of our customers that we have been working closely with for a number of months, doesn’t need us any more.

However, it’s often a bittersweet milestone as we will have spent a lot of time together. We will have co-created systems and solutions, shared ideas and strategies and ultimately built something innovative and uniquely ground-breaking to move their business forward.

 But what we have co-created belongs to the client. It has been uniquely co-crafted for the needs of a single client and designed for self-sufficiency.

Stepping back 

We’ve built in our own obsolescence – once we are confident that everything is working smoothly and that training and support systems are in place, we step back. And our client integrates the new solutions into their business model and runs with it.

We may perhaps hover a little, just to be sure everything is ok. But then, when we see the product or solution we have co-created making a real difference to their business, we let them go.

It’s a whole new customer dynamic in the world of affordability. We are re-shaping the way people do business and our customers tell us they like it. They like the process of co-creation. And they value the environment of trust – the sense that we want to stop the invoices as much as they do.

 However, once a parent, always a parent. Our offspring continue to need us at different stages in life, long after they are 18. And it’s the same with our clients. We hope they will come back to us when they need further support or solutions in the future. And like good parents, we will be there for them.

Use the Castlight brain to stay ahead of the game

The brain makes around 700 new connections each day – every time we do something for the first time or absorb new information, brand new neural pathways are formed. And the more connections we make and continue to use, the more effectively our brain works for us.

At Castlight Financial our data scientists and our customers are making connections between our products all the time. Our developers are making leaps between products, developing syntheses of ideas to create new services to meet the ever changing needs of the financial marketplace. And our clients too, are making connections, moving through one product to another, merging products, asking us to develop new products, bolting on aspects of one product to another.

And as our customers work with our developers and implementation teams, every day we see new connections being made between our customers’ pursuit of excellence and the solutions we can offer. New neural pathways are being formed, our customers’ businesses are being strengthened.

So that’s why I like to use the analogy of Castlight’s product portfolio as a brain – with neural pathways all leading off to different products – but with myriads of connections between them.

Castlight Financial portfolio of digital tools

Digital tools are too often put in a “toolkit” which is a perfectly good analogy for the way digital tools are used in many companies. But for us, I think the toolbox is too static. Once you’ve used a tool you put it back in the box and take another one out. We don’t want our customers to use our tools like that. We believe our customers will benefit if they sometimes use more than one tool at a time, if they adapt the tool as they go along, combine two tools together or get someone to run after them with a new tool that was never even in the box. And we also believe that our tools will make such a difference to our customers’ business that they will never want to put them back in the toolkit.

That’s why using the analogy of a brain to think about Castlight Financial’s portfolio of digital tools works so much better for us.

If we stay with the picture of the brain, our tools are located in different nerve centres of the brain. Some are more right brained products – intuitive, thoughtful and subjective. Products for instance like our Financial IQ, which uses customers’ transactional data to provide advanced insights into spending behaviour and reports its findings as a “persona” with a Financial IQ score and a set of uniquely individual predictive behaviours. It’s a product that understands how people think and behave. Other products are perhaps more left brained – more logical, analytical and objective such as CaaS or Categorisation as a Service. CaaS is the world’s most powerful engine for categorising and interpreting customers’ transactional data, which will, within minutes, take a customer’s raw transactional data, crunch through the numbers and split the raw data into over 180 categories of discretionary and non-discretionary spending. It’s a product where the numbers tell the story.

How it works with our customers

But of course, the right brain works together with the left brain, with neurons jumping synapses, making connections all the time. And this is how it works with our customers too.

A High Street bank, for instance, may be using CastScore to reach out to customers with thin credit files, who are normally excluded from credit, and give them a chance to be fairly assessed. Then together we identify an opportunity to take a slightly different path and use CastScore to help their customers augment a traditional credit score and radically improve it. And then our hypothetical bank may recognise that they can take Castlight’s risk management customer analytics up a gear and go down the path of implementing Castlight’s Financial IQ or test their data in Castlight’s Data Labs using our APIs to review the affordability performance of their portfolio, highlight problem areas and unlock potential for growth.

Constant changes

It’s one of our most important functions as a team to help our customers identify which pathway to go down to secure the best tools to empower them to grow, and to be robust and effective for their customers.

The open banking revolution is taking hold and taking hold fast. And banks and other financial organisations need to be more nimble and innovative than ever before. We must give our customers every opportunity to move agilely in and around our product suite, using the tools that best suit their needs today and exploring those that might suit their needs tomorrow. And back in the Castlight lab we must continue to test the products we believe our customers will need next month.

In the same way that the human brain constantly changes in response to experience, helping us learn and adapt to our environment, Castlight’s products are designed to help our customers adapt to an evolving financial landscape and predict what might be around the corner.

CastScore Is Becoming Ever More Human

We’ve said before that “nobody is average”. But it’s something worth repeating because it’s so fundamental to our vision for Castlight.

We are living in an environment where it’s easy to feel that many companies think they know us simply because they have some limited data on our life and our choices.

Market researchers and pollsters will put us into categories depending on our age, ethnicity, where we live and what we earn. Amazon will recommend what book we might want to read next, based on what we read last week. Sainsbury’s will send us money-off vouchers for food items they think we might want to buy again because we bought them before and Facebook will suggest new friends, because they are friends with other friends.

I’m not saying these aren’t helpful interventions. They are just limited, suggestions based simply on what, on average, people would do or want, given an average situation or choice.

Categorisation As A Tool

At Castlight Financial, we don’t do “average” and we don’t fit people into categories. In fact we have turned that entire concept on its head. We use categorisation as a tool for individuals to demonstrate their unique financial behaviours. Our categories are used to serve our customers, to demonstrate their differences.

Our CastScore, the world’s first affordability score, measures an individual’s affordability, their capacity to take on safe credit, by taking that individual’s transactional data and categorising it into over 180 categories of income and outgoings. And then it creates a unique 3D picture of their affordability.

The result of this? A CastScore affordability score which records the nuances of an individual’s financial behaviour and reflects the complexity of an individual’s life.

Nuanced Financial Behaviours

The categorisation engine which underpins CastScore is the most powerful engine of its kind in the UK. We are proud of this. But where we are going now, in 2019, is truly ground breaking. The Chinese may have made it to the dark side of the moon, but I am even more excited by what our team of data scientists are doing with our categorisation engine. CaaS, our engine, is constantly being trained by our data science team to “think” more like a human. They are creating an entire “interpretive” layer of technology over the number crunching and category sorting layer. That means, when it reviews an individual’s transactional data it records or “understands” way more than a set of credits and debits. It interprets the transactions and recognises nuanced financial behaviours. It understands the stories of people’s unique financial lives.

CastScore for instance, understands Black Friday. It understands Christmas. It understands that a baby has been born or a student has set up in a new flat. The interpretative technology recognises that these are blips of event-specific spending. It understands why the account has wobbled and it sees it steady again. It understands context and factors it in to its affordability scoring.

Growing Ever More Human

It’s a tough old world out there for many people and I’m thrilled that CastScore’s ability to “understand” provides what I like to call “redemptive” technology. That is, affordability technology that allows for mistakes to be made and then corrected, forgiven.

And CastScore’s interpretive function is not only helping individuals who experience blips in their spending patterns. It’s also enfranchising customers with thin credit files, by allowing them to demonstrate their unique stories and understanding their financial journeys.

I’ll come back to CastScore, there’s so much more to tell. But for now, I’m so delighted that CastScore is growing ever more human, all the more equipped to see us in all our glorious individuality and difference.