No time for heroes?


Our key workers deserve more than just a round of applause — so why do we still expect the people who have the least to pay the most for banking services?

To most people, social justice and the banking sector probably seem like strange bedfellows. Over the past couple of decades, the media has regularly cast bankers as villains-in-chief, and while that characterisation is largely unjustified, the industry will always be an appealing scapegoat for many of society’s ills.

Yet, living as we do in a society that runs on capital, it’s important to understand that banks are just as much part of the social fabric as schools, hospitals, and supermarkets. When banks don’t lend, the wheels of commerce can’t turn smoothly, and society doesn’t function. Moreover, the goals of UK banks and the UK government are broadly the same—to build a healthy economy and stimulate growth—even if their motivations for doing so are different.

Feeling the need for change

Increasingly, banks are acknowledging the role they need to play in restoring and rebuilding UK plc as we emerge from the COVID crisis and plot a new path to prosperity in the post-Brexit world. Yet behind all the fine words, there is a lot of hard work to be done. If the banking sector is to act as the engine driving a fairer, more resilient and more sustainable Britain, things will need to change.

For example, prior to COVID, if you were financially comfortable and had a stable career and credit score, you would typically have no trouble dealing with your bank. But if your finances were precarious and banks assessed you as a credit risk, you could be denied access to banking services or forced to pay higher rates for the same products. Even though you needed more and had less, you got a worse deal from the banks.

Help for modern-day heroes

That isn’t a good look in today’s world. As a society, our heroes are not the sharp suits who work in the city. They’re the frontline care workers in our hospitals, the delivery drivers who bring supplies to shielding households, and the supermarket staff who put themselves at risk every day. Should we clap for the key workers? Surely. But they need more than just a round of applause.

We’ve built a just-in-time society, where everything is hyper-efficient and runs like clockwork—until it doesn’t. And when it doesn’t, we have no room to manoeuvre. That’s why we’ve seen exhausted nurses queuing outside supermarkets after a 12-hour shift, only to find no stock left on the shelves. Is this fair? When things get tight, it’s always the same people who get pushed off the edge—those who are struggling to make ends meet on minimum wage, or who are never more than a couple of missed delivery slots away from the end of their zero-hours contract.

The question banks must consider is this: after COVID, what will we do for our key workers, after everything they’ve done for us? How can banks end injustice of rewarding the rich with low rates and favourable terms, while failing to help those who most need financial assistance?

Fairer risk-based pricing

Banks work on the traditional theory that people with lower credit scores are at higher risk of missing payments or defaulting on their financial obligations. They therefore argue that this risk needs to be built into the pricing model.

That sounds fair, but it’s not implemented fairly. Instead of pricing each customer’s risk accurately, based on their individual circumstances, banks today typically use a broad-brush approach, putting millions of customers into a few large buckets, and treating everyone in each bucket the same way. If you’re unlucky enough to find yourself in one of the worse buckets, you’ll find it much harder to get a loan or mortgage, and you’ll pay more for it if you do.

Making data-driven credit decisions

The answer, as so often, is in the data. Banks have enormous volumes of data on their customers’ financial status and behaviour, and today’s state-of-the-art analytics tools can harness that data to model risk with extreme accuracy and precision.

Instead of broad buckets of customers, we can now create micro-segments that help banks understand the situations of individual customers and respond in a fairer and more appropriate manner to their needs. We can position banks to advise and protect customers, instead of ignoring or exploiting them.

At the same time, by getting a better understanding of each customer’s true risk profile, banks will also be in a better position to make prudent credit decisions to protect themselves, their board and their shareholders’ interests.

Find out more about how banks can transform their approach to customer segmentation and build a fairer financial system.


About Author

Brian Holden

My team and I support complex financial services organisations in making better decisions to increase net income, reduce business risk, drive a reduction in capital allocation and operating costs. We are working collaboratively with senior stakeholders to provide transformational change leveraging their customer and industry data to positively impact global initiatives.

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