14 April 2008

Inefficient, out-dated management and analysis of customer data is threatening the UK banking industry's ability to support growing numbers of consumers falling into the downwards debt spiral, warns Detica, the business and technology consultancy. Many banks and building societies are likely to struggle to actively support these consumers under the requirements of the new Banking Codes which came into force at the beginning of April.

Under the new UK voluntary Banking Code, banks and building societies should provide more support to consumers heading into debt problems, including actively identifying and contacting those customers who may be at risk. Detica believes that a significant number of UK retail banks are not currently equipped to identify these customers under the new Code's requirements.

Maggie Scott, Executive Manager from Detica's Financial Services unit, says: "Due to a stream of recent regulatory requirements, banks actually have a great deal of data in place to build an accurate profile of their borrowers. Historically, however, banks have only used this data to assess their customers' financial circumstances when applying for credit. The challenge now is for them to apply this intelligence to identify financial stress and to act on the information to get in touch with customers to discuss ways to support them. If banks can't do this, then consumers won't benefit from the aims of the new Code and we risk debt spiralling further."

Scott adds: "Key to success for banks is creating the right organisational change. They need to put the insight developed by back office analytical teams at the fingertips of frontline customer service agents who are speaking to consumers directly."

Detica urges banks to focus on making more connections between the networks of evidence they already hold in order to proactively identify those customers who are falling into debt. Credit cards, for example, are often the first to show signs of stress. If a customer increases their cash withdrawals and, at the same time, reduces their monthly repayment to a minimum, these two combined behaviours are a strong indicator that the customer is struggling to meet their financial commitments. Another example is when cash withdrawals from a customer's credit card account coincide with deposits being made into a current account to keep it within the overdraft limit to pay bills or other loan repayments.

Scott concludes, "The commitments made within the new Banking Code should compel banks to look again at their responsible lending policies and how to translate them into action. The benefits are twofold - customers receive the support they need before it's too late and banks can reduce the level of debt that turns bad. By taking a more consultative approach with the customer and generating and exploiting insight from data they already hold, banks can play an important role in warding off the spread of the US consumer debt problem in the UK."

Sally Clift or Rachel Ringstead Porter NovelliTel: +44 (0)207 853 2222email: or