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.

Not waving but drowning

Over 8 million people in the UK are unable to pay off debts or household bills according to the National Audit Office’s most recent report. And this worrying statistic has subsequently generated considerable concern and column inches. However, in terms of the problem of financial distress, the millions of people in actual debt are only the tip of the iceberg.

Just this week the FCA published its Financial Lives Survey raising some serious concerns about the number of people in the UK who are not in debt at the moment – but whose finances are so precarious that one minor crisis or unforeseen expenditure could tip them over.

The survey reveals that:

* 3.1 million adults have high-cost loans

* nearly 6 in 10 (57%) of UK adults have no cash savings or savings of less than £5,000

* 7 in 10 (71%) of UK adults have no investments at all

* 31% of adults have no private pension provision

* 44% of UK adults rely or will rely on the state pension for their main source of income in retirement

Push them over the brink into debt

For many of these adults or families the unexpected cost of a boiler breakdown, a car MOT or a funeral would mean taking on more credit to cover the cost and would push them over the brink into debt.

And for some people it’s even more precarious, as a thread on Mumsnet made painfully clear. Responding to a discussion about a statistic that 2 out of 5 people have less than £100 in savings, one respondent said:

“Yep. I am in that statistic. Low paid job and crippling childcare costs. I’ve already had a cry today about my financial situation.”

Desperate times for many people.

So what can we do? We must look deeper than the tip of the iceberg to the people under the water who aren’t waving – but who are drowning.

Create a safer financial world

Our entire business is built on the objective to “create a safer financial world” and one of our key principles is to do this by helping people assess and then control their finances. There are plenty of admirable debt charities doing a tremendous job in the UK, and plenty of lenders looking to support customers too, but in order to help they need information. They need to know exactly what an individual’s income is as well as their essential, committed and discretionary expenditure. And then, armed with this transactional data, they can review arrangements or provide debt advisory support.

Our Affordability Passport uses open banking technology to allow an individual to share their transactional data with lenders or debt advisers, providing them with a real-time profile of their financial position in just a few minutes.

When money is tight or precarious, people need answers and solutions fast to ensure that disaster is averted. And the Affordability Passport allows that journey to be fast and efficient.

At Castlight we often use the image in our branding of a lighthouse casting light into a dark sea. It’s important to us that the light we cast penetrates beneath those icebergs to what lies beneath and helps to rescue the millions of people for whom debt is perilously close.

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.

We Must Address Financial Wellness

More than 6 out of 10 senior HR executives in the UK have seen a rise in financial well-being issues affecting employee mental health and work performance, according to a nationwide study by financial solutions company, MetLife UK.

 

And just this week Insider magazine’s Ken Symon highlighted a troubling figure of £51 billion, which according to a Yorkshire Building Society and Salary Finance report, is lost to the UK’s economy each year in productivity and recruitment expenses as financial pressures make employees unable to finish daily tasks and more likely to change jobs.

Financial Wellbeing At Work

These are very concerning statistics but I think what worries me, perhaps even more, is Metlife’s findings, reported by George Elringham on the Insight website, that businesses are concerned they do not understand enough about financial wellbeing, with 66 percent saying there needs to be more clarity on best practice on tackling financial wellbeing at work.

 

Adrian Matthews, Employee Benefits Director, MetLife UK said: ““There is no magic solution to improving financial wellbeing in the workplace….” And I’d agree with him as far as the magic is concerned. There may not be a magic solution but where we differ is that I believe there’s definitely a solution.

The Solution

Castlight’s Affordability Passport is ultimately a financial wellness tool, which can be put directly into the hands of individuals, whether they are employed by companies or working for themselves. Many of our customers use our Affordability Passport to demonstrate their affordability to lenders, but we are increasingly seeing people use its financial wellness functionality to manage and control their day-to-day finances.

 

The Affordability Passport uses open banking technology to access a customer’s transactional information and uses CaaS, a powerful categorisation engine to categorise 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. For one customer, the Affordability Passport may flag up that what is causing severe financial pressure is their car loan repayment plan. For another individual, it may just be that reducing spending on digital subscription packages would provide enough of a financial buffer, to ease the strain.

 

For some of our customers the Affordability Passport journey is reassuring and informative. It’s like a maintenance gym routine, a financial wellness routine that ensures they stay on track.

Life Changing

But for others with debt who are far from financially well it’s more like a brand new gym membership and induction course rolled into one. And it can be life changing because it sets someone back on the right path, by demonstrating to their bank that, whilst the recent financial path might have been rocky, there are patterns of sound financial behaviour that can be worked on and outcomes turned around. At Castlight we call it redemptive technology.

 

It’s not a magic solution. But sometimes, for someone in financial despair, redemptive technology can feel a little like magic.

 

 

Looking forward to the Financial Inclusion Summit in Westminster

We’re looking forward to Thursday’s Financial Inclusion Summit in the Houses of Parliament with Lord Bird. It’s an exciting opportunity for us to talk about The Big View, our fintech tool which gives people with debt concerns access to a version of Castlight Financial’s affordability tool. Since it was launched earlier this year, in partnership with the Big Issue Invest and Advice Direct Scotland, advisers have been helping people get the bigger picture of their finances, by using the Big View’s data and interpreting the findings. Equipped with new financial insights the advisers have then been working with their debt clients to create pathways back to financial stability. The Big View is working, it’s making a difference.

So this Thursday we are hoping the summit will encourage debate and the sharing of ideas amongst finance professionals who believe, like we do, that financial technology has the power to be redemptive, to give people another chance.

One of those like-minded finance professionals is Frank Cooper III, BlackRock’s Global Chief Marketing Officer, and who has recently discussed how financial services can be used for everyone, not just the elite few, to become more knowledgeable about their finances. He delivered at keynote at the recent Money 20/20 Revolutionary Stage, “Is There Wealth Beyond the Wealthy”,  and so much of what he was saying chimed with Castlight’s mission. Where we at Castlight talk about redemptive technology, Frank Cooper III was talking about the importance of empathy in financial technology. We are singing from the same hymn sheet.

This is what he said about the power of financial technology to help people:

“I think for us to really connect with a wider range of people so that more and more and more people have access to what we call wealth we need to step up the way in which we connect with people, the way we intuit how they think, feel and act, putting ourselves in their shoes.

I think we can leverage technology to actually expand empathy and understand people better.”

Financial technology tools like the Big View, can crunch through data and provide the behavioural insights that help us understand exactly how people think and feel and act. It allows to us do what Frank Cooper suggests – and put ourselves in someone else’s shoes.

And financial technology can certainly be leveraged to help us understand people and people to understand themselves. We share that passion with Frank Cooper.

But we have a tool that can transform understanding and empathy into practical help and solutions. Our redemptive technology can actually put people back on the path of financial wellbeing.

That’s a big responsibility. And that’s why we are thrilled to have the opportunity at the Houses of Parliament to share our ideas and listen to other people’s as we explore together how financial technology can make the world a better place.

Frank Cooper III is right to be excited about the potential for financial technology to change behaviours and help ordinary people become more financially stable. I wonder how excited he would be if he knew that here at Castlight Financial, we are already doing it and have a fintech tool already being used by individuals who are financially squeezed, struggling or debt-laden. And that it’s helping them back on the path to financial health and back to the lives they want to lead.

Because The Big View can track back through historical transactional data, it allows an individual to identify problematic financial behaviour which needs to be addressed or areas where simple changes in patterns and behaviours could significantly improve their financial wellbeing.

We like to think of it as “redemptive technology”, the kind of fintech that uses some of world’s most cutting-edge categorisation software to address one of society’s oldest problems.

So Mr Frank Cooper, if by any chance you are passing through London next Thursday, you would be very welcome to join us! And when you hear what we have to say, I think you might be tempted to jump out of your seat in excitement too!

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