Data On Demand take a look at the backdrop of the cost-of-living crisis focusing on the changing impact to consumers, what firms can do to help and what their own insights show.

IMPACT ON CONSUMERS

The challenges facing firms in 2023 on how best to support their customers will be no less challenging than the ones faced in 2022 which saw a sustained period of volatility and financial stress for UK Consumers. As we move into 2023 that situation will continue to evolve and also to impact new people.

Christmas was a welcome break for consumers, but also put further strain on spending with increased cost and for some, unaffordable borrowing. In a poll by the BBC, over a third of respondents who used credit to get through Christmas said they were not confident about their ability to repay.

Across November and December we saw over 1.2 million loan applications from consumers for High Cost Credit with a 30% increase on application volumes from 2021

Energy prices were a significant challenge across 2022 and remain so. This meant tough decisions for those with little, or no disposable income who couldn’t afford to heat their homes through winter. Research by Abrdn Financial Fairness Trust suggested as many as 75% of UK households had reduced usage to avoid cost.

Over 50% of High Cost loan applications across Q4 2022 were for “household bills”, equating to over £358 million in request support

The scale of impact is being felt broadly across the UK and not just by those in a persistent state of financial vulnerability. 2022 saw government support such as furlough drop away as prices increased. This has led to aftershocks as consumers who have been historically financially stable see savings dwindle and disposable income reduce, or disappear completely.

Data from the Bank of England shows credit card borrowing hit its highest rate since 2004 and use of Buy Now Pay Later increase as consumers look to alternative means to support their living costs.

Over 31% of the applications for High Cost borrowing seen in December were from individuals applying for the first time

IMPACT ON FIRMS SERVIING CONSUMERS

Some key themes and solutions we have been discussing with clients as they prepare for 2023:

• Don’t rely on the status quo
  Volatility brings increased change and risk. To understand how that impacts your customers alternative sources are critical to support BAU process.
• Be Pro-active
  Consumers may not feel comfortable speaking to you directly. Prepare to support inbound communication, but focus on how you engage proactively and provide other avenues for them to share problems.
• Focus on outcomes
  Do your processes/partners deliver the right outcomes for consumers? Identify areas for improvement.