Risk & Lending Predictions 2024: UK Stresses and Open Banking

It’s been a tough 12 months for many UK consumers with 2024 showing little indication of easing up. Many are, and continue to be, challenged by an ongoing squeeze on disposable income thanks to a combination of high inflation, higher interest rates, high prices and high rents for non-homeowners.  

Headlines suggest an improving situation for consumers as we move into 2024. But by lifting the lid on each of the key areas of household expense, it’s easy to see why many economists believe spending will continue to be hamstrung for the year ahead. Falling inflation, markets tentatively calling the peak of interest rates and some segments seeing real wage growth all sounds positive. But it’s also clear there will continue to be pressure on household finances well into 2024.

With this in mind, here are my predictions for the coming year, along with a ray of hope in the form of Open Banking adoption and a few tips for managing customers in this dynamic environment.   

Inflation Falls but Prices Remain Stubbornly High   

Despite falling inflation, it still remains stubbornly above pre-pandemic levels. The position is likely to continue well into 2024 with central banks suggesting that inflation won’t fall back to its pre-pandemic levels until the end of 2025. As a result, it will continue to exert pressure on household finances and weigh on discretionary spending patterns — particularly with energy prices staying high. According to the British Retail Consortium, a key indicator of the ongoing squeeze on household finances was reflected by a recent 20% spike in cash transactions at the point of sale. Commentators interpret the spending pattern as a handy route for families to directly impose stricter budgeting.

Falling Interest Rates Fail to Eclipse Remortgaging Challenges

Despite interest rates appearing to have peaked for now, the cost of mortgages and borrowing is still well above its post-financial crisis average. The result continues to heap financial pressure on households — especially those rolling off competitive fixed-rate deals, looking to remortgage, or move house. According to UK Finance, there are an estimated 1.6 million customers predicted to face some form of payment shock in 2024, as their fixed rate period from mortgages taken out pre-COVID come to an end. While it may not seem a huge number set against Britain’s 67 million residents, it actually equates to nearly one in five residential  mortgages.

What Goes Up in the Rental Market Rarely Comes Down

The impact of rising interest rates on mortgage holders is also continuing to heap pressure on the rental sector, with many landlords handing off higher costs to their tenants. Commentators predict 2024 will see rent rises soften as tenant affordability is stretched to limit. In fact, analysts at online agent Zoopla have predicted rent will increase by no more than 5% in the next 12 months — half the rate of 2023.

Open Banking and Open Data Gain Traction

Given the stresses in the economy, the rise of Open Banking can’t come fast enough, as it offers lenders a bigger picture of a consumer’s financial health. In the UK alone there are now nearly 250 approved Open Banking providers, all building capabilities based around specific use cases. In all likelihood this figure will continue to rise during 2024.

At the same time, the adoption of Open Banking is predicted to increase beyond the current 7 million users. The latest stats from the Open Banking Implementation Executive show adoption is finally accelerating, with around 1 billion Open Banking API calls made in July 2023 alone. It’s already being used to inform multiple disciplines. These include:

Payments – There were 11m payments from 7m users in July 2023, mainly for account top-up, bill payments and pay by bank apps.

ID Verification – To help further improve the customer journey especially in the digital channel.

Decisioning – Using Open Banking to better inform marginal approvals or declines.

Personal Financial Management – Pulling data into one place to enable analysis and a comprehensive overview of banking positions at any given moment.

Open Banking is still a relatively new proposition in the marketplace. As with all new propositions there is often an inflexion point that drives a significant increase in their adoption. With contactless payments in the UK, it took a combination of an increase in the modest £30 floor limit on transactions alongside Transport for London’s decision to accept contactless card payments as an alternative to the more niche Oyster Cards. A similar tipping point for Open Banking in 2024 could be prompted by the introduction of Open Banking data to customers’ Apple Wallets. Right now, it’s still being Beta tested on Apple’s IOS 17 software release. But it seems a natural step given the company has been making a big play about its privacy credentials for years.

Whether or not this proves to be the case, Open Banking and its evolution to Open Finance and Open Data are just one strand in the proliferation and democratisation of data. When this is taken into context alongside a regulatory regime that is increasingly focused on customer outcomes, it’s inevitable there will be an increased sense of urgency to build and embed services right across the customer lifecycle.

Five Quick Wins For 2024

Any headline economic figure often belies the differing individual impact felt by the millions of UK consumers. It also highlights the need for banks and financial services firms to quickly move beyond simplistic customer segmentation, to real-time account level analysis of portfolios. This can be achieved by:

1. Widening the view of the customers by using their internal data that may not have been previously used, such as investment data, insurance data and so on.
2. Enriching the view by overlaying insight with even more diverse external sources including mobile device data, rental data, ESG data, Open Banking data.
3. Identifying changes in real-time.
4. Feeding the insights into AI / ML models to inform and drive the most appropriate next best interaction with customers.
5. Creating an ongoing two-way digital dialogue with customers via their preferred channel and favored times of the day.

How FICO Is Helping

The key requirements and capabilities highlighted are all proven components of the FICO Platform. It enables businesses to manage complex data flows, drive deep customer insight and understanding, and make real-time decisions on appropriate treatments and engagement approaches for customers. It improves customer interactions through digital and traditional channels, with optimised approaches that consistently deliver the most appropriate business and customer outcomes.

• Read Agile Collections Strategies Can Protect Loyalty in Tough Times
• Read Debt Collection: Have We Learned the Lessons of the Last Crises?
• Watch a video on Why customer-centric debt collection is critical.
• Read the Forrester Wave on AI decisioning platforms
• Explore FICO Platform