There’s no tougher time than January for consumer financial management.

YouGov reported on findings that showed nearly 4 in 10 (38%) anticipated borrowing to cover Christmas expenditure - 22% of Britons expected their debt streams to increase over the holiday period. This year will be particularly testing as the impact of inflationary pressures, rising cost of living and escalating interest rates continue to spike. Consumers living on fixed income, low income with limited savings and those with income rising at a lower rate than inflation could find themselves vulnerable.

Credit bureau data

Credit bureau information has traditionally been used to assess credit worthiness, particularly at the point of application. This data gives a snapshot of a consumer’s financial position but offers a backward-looking view. The usefulness of this data for predicting future financial health and emerging financial distress is limited.

In addition, companies offering buy now pay later facilities do not report to the credit bureaus which leaves the true extent of consumer debt undetected, particularly at a time of year when these facilities have been utilised in the run up to the festive period.

Categorised bank statement transactions

Bank transactions from a consumer bank account give a much clearer picture of consumer spending behaviors. Decision makers can see whether a consumer is becoming over leveraged and the impact of additional economic pressures on their financial health in the future.

DirectID provides a view of bank transactions to help decision makers detect early signs of consumer distress. Categorised transactional data provides a clear view into a consumer’s ability to service debt and afford new borrowings.

By monitoring income and identifying debt-related outgoings, decision makers can use the DirectID platform to understand the current and future financial health of a consumer, making it easy to identify any early signs of distress.

The example below, taken from DirectID’s financial health report, demonstrates a negative trend a portfolio manager could typically view on a consumer. Whilst income appears to remain constant, income from a stable source, such as employment, has dropped whilst debt servicing obligations have increased. The information is available within seconds of a consumer connecting their account.

Open banking data is the answer

Only with open banking can these trends be identified. Open banking data is enabling portfolio managers to take early action and reduce the risk of bad debt, ensuring  that consumer repayment obligations are structured in an affordable manner.

For more information, or to view the data yourself, get in touch by filling out the form at the bottom of the page.