The case for proactive vulnerable customer management

Recent economic data paints a picture of cautious optimism for the UK economy. The latest GDP figures show that in Q4 2024, there was slight growth of 0.1%. This is different from earlier predictions of an economic decline. This surprising strength, along with two consecutive quarters of interest rate cuts, has brought some hope to UK financial markets and policy talks.

However, the Bank of England's recent downward revision of its 2025 growth forecast from 1.5% to 0.75% serves as a reminder that the path to recovery is not without its obstacles. The UK has been weathering a prolonged storm of uncertainty, with consumers bearing the brunt of ongoing cost-of-living increases and financial instability.

It would be unfair to expect many households to feel any quick benefit from the recent rise in the economy. Instead, many of us continue to work through the aftermath of recent years and expect to do so for some time to come.

Providing stability in uncertain times

In this context, the role of lenders in supporting consumers through financial difficulties has never been more critical.

In tough times, customers have historically been responsible for reaching out to their lenders if they're worried about meeting repayments. However, this approach presents several issues.

Imagine a person with a mortgage and an unsecured personal loan. They suddenly experience a negative life event, such as losing their job or are off work on long-term sickness.

While this may not immediately result in financial difficulty, the instance of negative life events correlate highly with lowered financial resilience and, therefore, increases the risk of meeting financial trouble.

Once a person admits they are in financial trouble, they will likely need to reach out to their lenders for help. At this point, many people hesitate. They may feel embarrassed or naively hope that their situation will get better on its own. While others hold a misconception that admitting financial difficulty will cause them to be mistreated by their lender both now, and in the future.

This hesitation often stems from a lack of appropriate financial education, which can lead to uncertainty among borrowers about their obligations and the consequences of missing payments.

Many are also unaware of the support available to them if they struggle to repay; further compounding their reluctance to seek help. Further, for borrowers with communication issues there is often a lack of awareness of the adjustments and options lenders can provide to ensure they can access the support they need, in a way that works for them.

According to the FCA’s Vulnerability Review, 58% of consumers either do not know if there is anything in place, or feel that there isn’t any support in place, to help them overcome the communication issues they face.

As a result of this delay in seeking assistance, by the time a customer does eventually reach out, they may have missed several payments. This procrastination can have serious consequences, potentially incurring high fees and damaging their future credit prospects. The financial impacts of these delays can quickly snowball, exacerbating an already stressful situation.

Once set in motion, the spiral of financial difficulty can be challenging to reverse. In the case of secured loans, it can result in life-changing consequences. For instance, borrowers might face repossession of essential assets such as a car or their family home.

These potential outcomes underscore the critical importance of early intervention and financial literacy in preventing long-term financial distress. But it also presents a key opportunity for lenders, to take action to detect vulnerabilities earlier and support customers in need.

Proactive vulnerable customer management

By adopting a more proactive, customer centric stance in identifying and supporting customers in vulnerable circumstances, lenders can prevent financial difficulties from worsening.

But how can lenders achieve this? The answer lies in leveraging advanced technology and data analysis to look deeper into customer behaviour, communication preferences, and financial patterns.

By analysing payment histories, transaction data, and other relevant indicators, lenders can identify early warning signs of financial stress throughout the customer journey. These include subtle changes in spending patterns, an increased reliance on credit, and missed or late payments.

The power of this approach becomes evident when we consider real-world scenarios.

Imagine the same customer who has unexpectedly lost their job. They consistently made timely payments for years, but suddenly they’ve missed a payment. This might trigger an automated late fee and a generic reminder.

However, a proactive, technology-driven approach would flag this anomaly for human review. A trained customer support representative would then contact the customer, by their preferred communication method, to make a genuine enquiry into their circumstances. It can also start a discussion about support options, such as 'breathing space' or changes to the repayment schedule (e.g., extending the loan term or lowering monthly payments for a while).

As a result, the customer outcome is improved, and you avoid a default on the loan. This shows you as a trusted lender, who was there to help them during tough financial times. In doing so, decreasing the chances of them getting into a financial spiral.

Technology enabled human support

Forbearance measures become more effective when technology is involved. Technology can do more than just automate processes in customer management. It can also help vulnerable customers through leveraging sophisticated tools to create more empathetic and personalised customer experiences.

Open Banking

Proactive support can be bolstered by the capabilities of Open Banking technology. By giving lenders real-time insights into customers' finances (with customer consent), lenders can access up-to-date account data, providing a comprehensive view of income patterns, spending habits, and overall financial health.

With this information, a lender could quickly identify whether a customer's regular salary payment has reduced or is absent. This early warning sign could prompt help from the lender long before the customer misses a payment or falls into financial difficulty.

However, lenders should approach Open Banking with sensitivity and respect for customer privacy. The goal is not to intrude but to offer timely, relevant support when it's most needed. Lenders must strike a delicate balance between leveraging data for customer benefit and maintaining trust through transparent, ethical data practices.

Conversational AI and chatbots

For customers who feel uneasy talking about their money problems with a person, conversational AI and chatbots offer an accessible, non-judgemental way to start. They can offer basic information, guide customers through self-help resources, and escalate complex cases to human agents when necessary.

As advances in AI and Natural Language Processing (NLP) continue, the use cases for conversational AI also progress and may quickly become part of the service options consumers come to expect. For instance, NatWest has recently announced its partnership with OpenAI with the view to expanding their digital assistant services. One such expansion is using AI to support customers to identify, report and resolve suspected fraud and scams.

AI and ML for analysing big data

Another example is analysing big data with AI, which can enable consumers to have a borrowing experience that truly understands and addresses their unique needs.

By leveraging a deeper understanding of vulnerabilities and how they interact with one another, lenders can design inclusive financial products and provide compassionate and comprehensive support to vulnerable customers.

Here at Lenvi we’re already leveraging advanced AI tools to optimise our clients’ abilities to provide better customer outcomes. We’re also currently developing AI-optimised workflows that proactively assist vulnerable customers throughout the lending lifecycle, ensuring fair treatment and regulatory compliance, while improving efficiency and customer satisfaction for our clients.

Overall, the most effective strategies will blend technological insights with human empathy and expertise. Lenders should view technology as a tool to enhance, not replace, human interaction in supporting vulnerable customers.

Investing in vulnerable customer management

The case for investing in robust vulnerable customer management strategies extends far beyond regulatory compliance or risk mitigation. It transforms lender-customer relationships and supports better customer outcomes:

Early, tailored interventions preserve customers’ financial stability, dignity, and independence.

Proactive support during challenging times, fosters a deep sense of trust and loyalty. Leading to stronger, more enduring relationships, and greater customer satisfaction.

Timely identification of potential defaults enables appropriate forbearance, reducing losses and maintaining portfolio health.

By showing they care about customers, lenders can build a better reputation. This helps attract new customers who want ethical and supportive financial partners.

Findings from the FCA’s recent Vulnerability Review reinforce the human, and commercial benefits of this approach. Through a combination of qualitative and quantitative research, they found that tailored support, that is personal in nature and approach and responds flexibly to the individual needs drive positive outcomes, trust, and customer loyalty.

It was also encouraging to see that their research found that lenders are already embracing proactive, personalised approaches.

45% of respondents who face job loss, redundancy, working hour reductions against their wishes or bankruptcy reported that they were given the time needed to consider the impact of event and make financial decisions.

While 49% of the same group reported that their providers gave them the support that they needed during times of financial difficulty.

In one case example, they reported how proactive communications on the part of the loan provider resulted in the consumer both improving their circumstances and going on to take on additional financial products from the same provider. Improving customer advocacy and total customer values (TCVs).

The way forward

Looking ahead, the characteristics of vulnerability will continue to be complex and multifaceted, requiring a nuanced, compassionate response from lenders.

Achieving this comes from a delicate balance between technological innovation and human touch. It requires a commitment to ongoing learning, adaptation, and a fundamental shift in the lender-customer relationship.

By investing in advanced loan management platforms that incorporate vulnerability detection and support features, lenders can create a more inclusive, supportive financial ecosystem.

Those lenders who rise to this challenge will be best positioned to build lasting relationships, enhance their reputations, and contribute to a more resilient, equitable financial landscape for all.

[Article updated 27 March, 2025]