In Focus Risk
Rising to the occasion
New innovative solutions are needed to avoid increased financial exclusion in wake of Covid-19
Julian Winfield Chief executive, Hoist Finance UK
Millions of Europeans lack access to affordable financial services because of current or past financial problems, and the number will surely rise due to the Covid-19 pandemic. This implies that the financial sector needs to innovate and form new alliances to drive financial inclusion. In a recent research paper, the European
Central Bank looked at previous financial crises for a steer on how to handle an expected increase in non-performing loans (NPL) in the wake of the ongoing pandemic. The paper makes it clear how we manage NPLs is critical to economic recovery.
the numbers of the most vulnerable in our society will definitely grow in the months and years to come.
The rise of digital In the context of this challenge, it is useful to keep in mind some fundamental changes in the banking industry. Customers are increasingly demanding digital servicing and local branches are rapidly becoming a thing of the past. Banks are rapidly responding by providing customers with convenient digital access to a wide range of affordable banking products, be it cashless transactions, mortgages, savings products, or insurance. However, when it comes to devising
Recently, we have been rethinking our sustainability strategy, and how can we create shared value and make the most positive impact in the long-term
As we wait for the Covid-19 pandemic
to affect banks’ loan portfolios, we are still working through the NPLs stemming from the global financial crisis in 2008 and the following euro crisis. The number of NPLs in Europe peaked in 2014 and has since gradually decreased. However, there are still more than €600bn worth of NPLs in Europe, of which about 40% is household debt. It is important to remember that behind
these staggering figures there are actual people facing financial distress. Many of them are unable to access affordable basic financial services that most of us take for granted, and
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solutions for customers facing financial distress, personal interaction has many advantages compared to a mobile app or a faceless call centre. Increasingly, banks have realised this and have chosen to sell portfolios of NPLs to specialised debt resolution partners, including Hoist Finance. Recently, we have been rethinking our
sustainability strategy, how can we create shared value and make the most positive impact in the long-term. Businesses like ours work with people in financial difficulties every day of the year, and have a significant impact on people’s lives and society at large within the social aspects of sustainability, and specifically within financial inclusion. Our experience tells us most people truly
want to establish a reasonable repayment plan and get back on their feet financially. But many find it hard to do so as either they do not have sufficient income or because they do not have access to affordable financial services and end up paying a premium for access to credit. We should remember that it is not always enough to pay off your debts in order to be included in the financial
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ecosystem. Most of our customers are still categorised as so-called high-risk individuals and consequently often do not get access to affordable loans or other financial services.
Affordable access Our ambition is to take a more active role in enabling people to avoid being shut out from the financial ecosystem and being prevented from accessing affordable financial services. One of the ways we can do so is not to
support those lenders whose financial products are especially toxic. We do not buy portfolios from some parts of the consumer finance markets including pay-day loans and SMS loans, and we encourage others in the industry to do the same. But even so, some people will still run into
financial problems. We have started several initiatives to spur new innovative solutions helping our customers to get back on track. In the UK, a new partnership with AppJobs, for example, is helping those now struggling with their finances to access gig jobs for to supplement their income. In Germany, we have partnered with Team-U, a social enterprise, that supports SMEs with ways of preventing a drama becoming a crisis. In Holland, we are co-operating with ONSbank, a foundation which helps young people with problematic debt get their lives back on track. These are just a few examples of how
organisations like ours are finding new and more imaginative ways to support people in financial distress and more will follow. We will undoubtedly see more people having a hard time handling their debt due to the pandemic. The financial sector need to rise to the occasion and accelerate its efforts to help customers and improve financial inclusion. The economic recovery and society’s functioning depend on it. CCR
August 2020
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