Industry Thoughts

Loan shark debt can devastate individuals and families, affecting vulnerable members of society and leading to life-altering consequences. Behind the scenes, the England Illegal Money Lending Team (IMLT) continues to fight this criminality, ensuring illegal lenders face justice and providing essential support to victims. Research from the IMLT highlights the alarming statistics surrounding loan shark debt. The findings underscore the challenges faced by borrowers and the urgent need for support and intervention. The ongoing picture When people borrow from an illegal lender, many believe they are dealing with a friendly acquaintance. In 2024, 57% of the borrowers supported by the IMLT initially thought their lender was a friend. The primary reason for borrowing remains household expenses, with many struggling to cover rent, bills, and groceries and 50% of borrowers went without food and fuel to make repayments. A huge 91% of borrowers supported in 2024 had no savings to fall back on. Many borrowers are unaware of alternative sources of financial support. Nearly half (47%) had never heard of credit unions. Loan sharks exploit this, convincing borrowers there are no other options, leading them into a cycle of debt. The statistics show that 76% of individuals borrowed multiple times. The true cost of loan shark debt The financial burden of illegal lending in 2024 has escalated with clients borrowing higher amounts compared to previous years. While only 3% took out loans of less than £100, 71% borrowed between £300 and £10,000. The median amount borrowed stood at £6,100 – double the median of 2023. However, the cost of these loans is far more than what was originally borrowed. On average, borrowers ended up repaying £12,300 – more than twice the amount borrowed. Who is affected and how? The research reveals 100% of borrowers who applied for legal credit in the past year were declined, leaving them to seek alternative, sometimes illegal, options. Key insights include: 67% of borrowers had incomes below £20,000 10% of victims were self-employed, a higher percentage than in previous years 11% borrowed due to financial struggles linked to the COVID-19 pandemic 49% of borrowers reported mental health issues, the highest percentage recorded so far, demonstrating the devastating psychological toll Loan sharks can using social media to reach potential borrowers, which they then use to intimidate victims. Some lenders have even introduced a sexual element to their demands, with 9% of borrowers reporting that lenders suggested sexual favours when repayments were missed. Fighting back Efforts to combat loan sharks and support victims are intensifying. The Financial Conduct Authority (FCA) has taken action by applying to cancel permissions for unscrupulous lenders. Meanwhile, the IMLT, known in communities as Stop Loan Sharks, continues its national awareness-raising campaigns and activities. National Stop Loan Sharks Week is held every year (this year it runs from 19 to 25 May) and aims to highlight the dangers of illegal lending and encourage victims to seek help. Weeks of Action are held in local communities throughout the year to raise awareness, with the help …

Recent figures show that the amount of money illegally defrauded by criminals via online banking fraud and telephone scams continues to rise. According to UK Finance, the number of cases of online banking fraud rose by 12% to 232,429 in 2023, with losses totalling £459.7million. How does online and telephone banking fraud occur? Phone banking fraud, commonly known as ‘phishing’ often occurs when an individual is persuaded to transfer money from one bank account to another. 1. phone banking fraud With decision systems, lenders can develop phone banking fraud: By telephone with the fraudster posing as a trusted third party and using social engineering to gain personal/financial information or attempting to convince the victim to move money (“vishing”); or 2. the fraudster intercepts and hijacks email traffic between two parties This is know as a “man in the middle attack”. The fraudster will then usually facilitate the transfer of money to its account (when the victim thinks it is paying the legitimate original email contact) or encourages the victim to log onto a fake website which then asks the victim to enter personal/financial data or places malware onto the victim’s computer (“phishing”). When the fraudster receives a sum of money, these are quickly transferred to third party beneficiary accounts and often across multiple jurisdictions. Defrauded victims need to think fast and act quickly. Practical steps to take after online or phone banking fraud Listed on the next page is our ten-step guide to practical steps, which you should take immediately on discovery of any suspect transactions: Contact your bank immediately to inform it of what has happened. Confirm the bank account number which the monies have been sent to and to request that an indemnity be issued to the beneficiary account via “Share Point”. Your bank might be able to stop the transaction from going ahead or recover funds from the fraudster’s account. Contact the beneficiary bank account where your money was sent and let it know the account number and any relevant information about the scam. Contact experienced legal representatives for urgent legal advice who can assist in freezing bank accounts via injunctive relief and trace funds through the civil courts by issuing an application(s) for a Norwich Pharmacal Order(s). Report the crime to the police through Action Fraud (0300 123 2040). Where litigation is contemplated/a possibility, it is essential that the relevant documentation is preserved and stop any electronic (and other) routine document destruction. Keep a record of any conversation/correspondence you/your employees may have had with the fraudsters whilst the details are fresh in your mind. Contact your insurer to see if you have policy cover for loss as a result of online banking fraud. If funds have been taken from a company account, undertake a thorough internal review of policy, practice and investigate any employees who may have been involved with the transfer of funds. From 7 October 2024, Payment Service Providers (PSP) (including all major banks) are required to refund frauds worth up to £85,000 under …

As we come to the end of 2025, it has certainly been a busy period in terms of activity on the regulatory horizon. Most recently, this has centred on the motor finance market. I wanted to take this opportunity to tell members about what’s happening in this sector, in particular around the subject of commissions. No doubt, most will be well aware of developments in the motor finance legal cases, but we now have another consultation on Buy-now, Pay-later products as well as a response from the Financial Ombudsman Service on their views for proceeding with proposals to charge claims management companies (CMCs). So, there is a lot to focus on before we all start to wind down for Christmas. However, I think I can comfortably say that the matter of commissions in the motor finance sector will continue to dominate well into 2025. Aspects of the Court of Appeal decision on 25 October took the industry by surprise. The fallout of that decision led to some lenders temporarily pausing further lending. Similarly, it caused a degree of uncertainty in the industry. What did the decision mean for lenders and brokers? Was the decision going to be appealed? Should industry be making changes now or wait for an appeal, if any? I know that we certainly liaised with many of our members in respect of such questions and issued insights from the wider engagement we undertook, such as from dialogue with legal professionals, other trade associations and the FCA. Our latest motor finance roundtable was also dominated by the subject of commissions. The Court’s decision led to the industry focusing on understanding what ‘fiduciary duty’ was and how this needs to be discharged. The spotlight was on understanding ‘half secret’ and ‘fully secret’ commissions and where liability would fall if the duty of the broker was not discharged. But without a doubt, the biggest shock from the Court’s decision was around informed consent. They ruled that it expected the defendants to not only disclose commission amounts and the calculation of the arrangement, but it also expected the defendants to obtain the customer’s informed consent. Up until this point, there have never been any legal or regulatory requirements to obtain a customer’s informed consent. The further concern was that this decision, therefore, does not only apply to discretionary commission arrangements, but commission arrangements in general, including fixed or flat rate commission. This was a surprise, given that even the FCA was not concerned about other types of commissions. Their current review into commission arrangements only covered discretionary commissions, and not fixed or flat rate commissions. But, when I say that the matter of commissions will continue to dominate well in 2025, we know that the defendants have lodged an appeal with the Supreme Court. This was done ahead of the 22 November deadline. The CCTA believes that an appeal was important, given the fact that the Court of Appeal decision now has wider implications on the motor finance market and brings …

The history of the CCTA Access to credit has always been central to the work of the CCTA since it was founded over 130 years ago. Our role has always been to provide credit for individuals that struggle to access elsewhere. One of our first members was the White Sewing Machine company. This was the biggest purchase for many homes in the 19th century. And not that much has changed, our members still help customers purchase vehicles and household appliances, but also smooth peaks and troughs in their income. We have a long-standing project to protect access to responsible credit that we often update members on. In recent months, we have seen a greater interest in access to credit and financial inclusion from a range of external stakeholders which has been encouraging. As such, I wanted to write to let you know about these developments and some of the next steps we will be undertaking. The impact of a new government Turning first to the new Labour government, we have seen an increase in their engagement on the issue of access to credit. Even prior to the announcement of the General Election, the Labour Party outlined its commitment to a National Financial Inclusion Strategy, should it gain power. This was reinforced by Tulip Siddiq MP, the Economic Secretary (Minister responsible for financial services), at the party conference which took place in September. The Secretary said that the Strategy will be designed and implemented by a committee chaired by a treasury minister with representation across government, regulators, and industry. Through writing to the Secretary, and in our regular discussions with HM Treasury officials, we have expressed our desire to play a role in the process. We believe the experience our members have of lending to those currently excluded will be vital to the development of the Strategy. Other ongoing discussions We have also continued to work in partnership with other organisations. We have collaborated with Fair4All Finance for some time and were delighted that their new CEO Kate Pender, took part in our Annual Conference. Kate talked about their desire to work with the private sector on new products, referencing the c.2 billion of estimated current unmet, but potentially commercially viable, credit quoted recently by L.E.K. Consulting. Discussions continue with members of the CCTA about potential partnerships. It is refreshing to see organisations such as this looking to work with the private sector to develop solutions. We were also lucky enough to have Chris Pond, Chair of the Financial Inclusion Commission, speak at our conference too. Unsurprisingly, they are supportive of the new Strategy promised by the government. The Commission has released new research carried out by the Centre on Household Assets and Savings Management (CHASM) at Birmingham University, which highlights the harm financial exclusion continues to cause in communities across the UK. This is a problem that needs to be addressed. The report also talks about the costs that financial exclusion causes the UK in terms of lack of productivity …

Registry Trust has just published the latest data on the number of judgments registered against consumers and businesses in the UK. What stands out is the sharp rise in judgments taken out against incorporated businesses, typically limited companies, in England and Wales in Q3 2024 and throughout 2024. England and Wales is by far the largest jurisdiction covered by Registry Trust. Incorporated judgments more than doubled, by 107%, from 22,328 in Q3 2023 to 46,226 in Q3 2024. Incorporated judgments rose much faster than those taken out against consumers. The total value of debt against incorporated businesses also rose but by much less, up 24% from £103 million to £127 million over the same period. As a result, the average value of the judgments fell significantly by 40% from £4,585 to £2,743 over the period. Claimants have been taking out significantly greater numbers of, but smaller value, judgments. In contrast to judgments for incorporated businesses, the number of judgments against unincorporated businesses, typically partnerships and sole traders and therefore smaller, fell by 5%, from 6,613 to 6,291, over the same period. The total value of unincorporated judgments registered fell by 3%, from £22.7 million in Q3 2023 to £22 million in Q3 2024. The average value of debt saw a small increase from £3,429 to £3,508. Looking at consumer debt, we saw a different pattern from commercial judgments. The total number of judgments registered against consumers rose slightly by 4%, from 224,152 in Q3 2023 to 234,047 in Q3 2024. The value of debt registered against consumers increased by nearly one-fifth (19%), from £391 million to £463 million. This means the average value of debt against consumers rose by 13%, from £1,744 to £1,980. Medium to longer term picture To get a better picture, it is worth looking at medium-longer term data. It is notable that in the first three quarters of 2024, there were nearly 114,000 judgments registered against incorporated businesses. That is higher than the full year totals for each of the previous five calendar years 2019-2023. The number of incorporated business judgments in each quarter (Q1, Q2, and Q3 of 2024) was higher than in their equivalent quarters in each of the previous five years. Even if the growth slows down, we could be looking at incorporated business judgments reaching well over 140,000 for the full calendar year 2024. If the rising trend continues in the fourth quarter, the total could reach 150,000 for the full year. Of course, claimants may well have been playing ‘catch up’ after the pandemic and incorporated business judgments could fall back again. But, even if they do, as mentioned, the number of judgments in 2024 has already surpassed the full year calendar year figures for the previous five years. So, we are looking at full year results for 2024 significantly higher than any of the previous five years. Whatever happens, 2024 has been a bad year for incorporated business judgments, certainly over the recent period. The period 2019-24 incorporates the pandemic …

As we come to the close of the year and our final 2024 issue of CCTA Magazine, this is an ideal opportunity to reflect on the developments from the past year. Consumer Duty Any review of the year has to include the Consumer Duty. Everyone started the year with one eye on the mid-year anniversary. With so much uncertainty, the CCTA stepped in with guidance papers and events to draw on the insights we could bring back from our discussions with the FCA. It became clear that it was critical that firms share experience and make the best case possible when challenged by the regulator. Throughout this year, we have looked at the exchange of information between brokers and lenders. Lenders undertook reviews like fair value assessments. The writing of the Board report completed this first stage. However, we know this is a journey, not a destination. It is also a journey that will continue for the foreseeable future. Access to credit Access to credit has long been one of our core campaigns. It was why lenders founded our association over 130 years ago. We started the year by discussing the fall in the credit supply with the FCA. Later, the regulators reached out to many of our high-cost members. We were involved in independent research that showed the scale of the issue. As we come towards the year’s close, there is more focus on financial inclusion than ever. The FCA now must “have regard” for financial inclusion in everything it does. Recent Court of Appeal ruling Elsewhere, we all had an unpleasant surprise as the Court of Appeal altered our understanding of the relationship between lenders, brokers and consumers. Car finance providers have moved quickly to respond. However, we are now working on a solution that might involve a review by the Supreme Court. The FCA will most definitely need to get more involved to minimise disruption. As I write this, we still have a few weeks left in 2024. Maybe it is too early to draw a line under the year. Regulatory changes Recently, the Chancellor discussed some opportunities in her Mansion House speech. Earlier in the year, we received some positive indications when the Financial Ombudsman Service (FOS) proposed charging claims management companies (CMCs) and legal firms a case fee. For us, it was another step forward. We have been working on this change for several years. We are also in the early stages of a consultation on the reform of the FOS. If that is not enough, the Treasury has undertaken work to look at new regulatory changes. The long awaited regulation of Buy-Now Pay-Later is moving down the road. Consumer Credit Act reform The election had brought the conversation about reform of the Consumer Credit Act (CCA) to a close, but as the year ends, those talks have restarted. We have actively lobbied for changes that balance updating the system and regulatory certainty. Smaller lenders often find themselves disproportionately burdened by regulations designed with larger …

The FCA introduced changes to the Consumer Credit Source Book from 4 November 2024. For consumer credit firms, the important changes to review are: CONC 1.1 – Application and purpose CONC APP 1.2 – Total charge for credit rules for other agreements CONC 5.2A – Creditworthiness assessment CONC 6.7 – Post contract: business practices CONC 7.2 – Clear, effective and appropriate policies and procedures in respect of customers in or approaching arrears or in default CONC 7.3 – Treatment of customers in or approaching arrears or in default (including repossessions): lenders, owners, debt collectors CONC 7.6 – Exercise of continuous payment authority (CPA) CONC 7.7 – Application of interest and charges CONC 7.10 – Treatment of customers with mental capacity limitations The FCA is also careful to remind firms of the Principles for Business within the new updates. Key points to take away are that customers can now not be “particularly” vulnerable. The handbook details a more holistic approach for creditworthiness assessments which may indicate the customer has recently experienced or is likely to experience financial difficulties or whether the customer is vulnerable from mental health difficulties or mental capacity limitations shown in the assessment. Credit cards and retail revolving credit do not escape the update with further guidance in relation to financial difficulties. The FCA’s focus is once again on firms’ policies and procedures. Attention should be given to your policies, particularly how you deal with customers who are approaching arrears and default or vulnerable customers. Importantly, CONC 7.2.4R means that it is a rule that you review at appropriate intervals the effectiveness of your arrears and default policies and compliance with the same. You may want to review your training to ensure that there are no inadvertent rule breaches. The regulator wants more transparency on income and expenditure so customers can obtain this information and easily share it with other lenders and debt advice providers. CONC 7.3.13A encourages firms to consider the information provided to customers when approaching arrears or in ensuring it considers the individuals circumstances and their current situation in relation to that debt, options available to them and the impact of such forbearance. The definition of ‘approaching arrears’ asks firms to consider a customer in this status when they notify you that they are at risk of not meeting one or more repayments when they fall due. You should note that they may not have missed any payments at this stage. A priority should be given to review your collections and forbearance policies to ensure that you are up to date. The above is a taster of the regulatory changes implemented this month. Jane Blowers and Anneli Choyce are both Consultants at ALPH Legal who is an associate member of the CCTA.

The recent (and largely unsuccessful) increase in claims against motor finance lenders relating to a vehicle’s previous keeper history has brought into focus what checks (if any) lenders need to make before entering into a motor finance agreement. In this article, we consider whether there is a need to make enquiries about any outstanding recalls before supplying a vehicle. The General Product Safety Regulations The General Product Safety Regulations 2005 (the GPSR) sets out obligations on producers and distributors to only place ‘safe’ products onto the market. Producers are defined as the “manufacturer of the product”, so a motor finance lender is unlikely to fall into this definition. Distributors are defined as “a professional in the supply chain whose activity does not affect the safety properties of a product”. Could a motor finance lender be a distributor? The short answer is that it could. The GPSR does not give any examples. However, the Driver and Vehicle Standards Agency (the DVSA) issued a code on interpreting the GPSR entitled ‘Vehicle safety defects and recalls: Code of practice’ (the Code). Annex A says a distributor will “typically be an importer, a dealer, wholesaler or other seller of the product” (so could include a motor finance lender entering into credit or hire agreements). What obligations are imposed on distributors? Distributors do not have the same obligations as a producer under the GPSR. By Regulation 8(1)(a), distributors must act with “due care in order to help ensure compliance with the applicable safety requirements” and ensure that they do not supply a product to any person which they know, or should have presumed, is a “dangerous product”. A “dangerous product” is one which is not a “safe product”. A “safe product” is a product which under normal use does not present any risk, or only the minimum risks compatible with the product’s use. The sanction for failing to comply is a criminal one. If a motor finance lender is a distributor, how should it comply with the GPSR? In April 2014, the DVSA provided guidance entitled ‘A guide to safety recalls in the used vehicle industry’. The DVSA’s view is that “a product with an outstanding safety recall should not be passed to a consumer”. The guidance also said that if “you are selling a vehicle to a consumer, you will need to check for outstanding recalls and these safety recalls must be attended prior to the consumer purchasing the vehicle”. While motor finance lenders are likely to be distributors, it is far from clear whether they should be undertaking vehicle recall checks before entering into a finance agreement. The guidance was aimed at “any persons or company who is in the vehicle supply chain which results in the sale of a used vehicle or product to a consumer” (so could include a motor finance lender). However, and importantly, the guidance also states that if “you are passing vehicles within the trade you need to share information about any outstanding safety recalls” (an obligation found …

The Court of Appeal’s decision in Johnson v FirstRand Bank Limited (London Branch) [2024] EWCA Civ 1282 came as a considerable surprise to the motor finance industry (and many other financial services industries). This short article considers the decision and what will happen next. The facts Each claim involved a consumer visiting a dealer, selecting a vehicle and wanting finance. This table sets out the key facts. The Court of Appeal decided: The context of the relationship between the dealer and the customer is “important”. The position may therefore be different where either (a) the dealer is not making a profit from the vehicle’s sale or (b) the customer is sophisticated. The Court decided that the borrowers were owed a ‘disinterested duty’ because “it was part of the credit broker’s role to provide information to the lenders on the customer’s behalf, and to the customer about the available finance. The very nature of the duties which the credit broker undertook gave rise to a ‘disinterested duty’ unless the broker made it clear to the consumer that they could not act impartially”. The dealers also owed an “ad hoc fiduciary duty running in tandem with the disinterested duty, arising from the nature of the relationship, the tasks with which the brokers were entrusted, and the obligation of loyalty which is inherent in the disinterested duty”. The dealers were not carrying on a purely administrative role. Instead, the dealers “were in a position to take advantage of their vulnerable customers and there was a reasonable and understandable expectation that they would act in their best interests”, meaning they owed them fiduciary duties. Some problems of the decision This is the first time that the Court of Appeal had considered duties owed by dealers to their customers. Before then, the County Court regularly decided that dealers did not owe such duties. This was expected: no regulator had ever said that dealers were fiduciaries. In fact, the FCA’s own rules did not require any disclosure of the amount of commission and the basis of its calculation (which is what the Court thought was necessary in these appeals). The usual approach of regulation is to require firms to take additional steps. What happens next? Both lenders have made applications to the Supreme Court seeking permission to appeal. It is likely that a decision on permission will be made in early 2025. If permission is granted, there will be a hearing. But this is unlikely to happen before summer 2025 with a decision to follow. In the meantime, the FCA is consulting on whether to extend the pause to motor finance commission complaints to commissions which were not discretionary (but it seems likely it will). Many County Courts are already staying claims pending the Supreme Court’s decision. It seems there will be considerable focus on what happens at the Supreme Court which will hopefully reach a sensible place and restore order to the market.

Brandon Wallace, Senior Product Manager at financial data intelligence company Bud, explains why, contrary to misconceptions, use of open banking data in the affordability assessment process can help lenders increase approvals without taking on extra risk. It’s a common misconception in the lending industry that using open banking data in lending processes will lead to an increase in declines. This perspective comes from the idea that more data means discovering more reasons to reject borrowers. But the opposite is true: open banking data can help lenders discover reasons to approve customers they would have otherwise declined, all while maintaining or even reducing risk. It’s true that better data enables lenders to decline higher risk customers (leading to a better performing portfolio). However, the few extra declines are outweighed by the increase in approvals lenders achieve by using open banking data to take a second look at thin-file, poor credit, or credit-invisible customers. These applicants are almost always declined when assessed on credit reference agency data alone. At Bud, we’ve seen first-hand how open banking data, when combined with traditional credit reference data, opens up new lending opportunities. Our clients are reporting that they’re accepting more customers as a result of supplementing credit reference agency data with open banking data. One of our credit broker clients, TotallyMoney, saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. One of our credit broker clients saw a 22% increase in approval rates when lenders used enriched transaction data, compared to using credit reference agency data alone. In terms of reducing risk, open banking data is proving equally valuable. One of our lending clients, Moneyboat, has seen a 20% reduction in missed payments since incorporating open banking data into their affordability assessments. This demonstrates how transactional data can identify risky behaviours—such as loan stacking, high Buy-Now Pay-Later use, or problematic gambling —before they result in defaults. Beyond increasing approvals and reducing risk, open banking also offers significant operational efficiencies for lenders. By streamlining the lending application process, open banking reduces the need for manual data entry and analysis, resulting in faster decision-making and lower operational costs. For instance, our client Blackbullion reduced application times from forty minutes to less than five minutes by incorporating open banking data into their application process. Moneyboat also saw impressive gains, achieving a 25% reduction in processing time for returning customers and a 16% reduction for new customers. With the right partner, integrating open banking into your existing systems and process is seamless, allowing lenders to reap the benefits of efficiency, speed, and reduced costs without overhauling their operations. The time for lenders to fully adopt open banking is now. Rather than being a barrier to lending, it is a powerful tool that can unlock lending opportunities while supporting customers who have been underserved by traditional credit assessment methods.

I had the pleasure of joining a panel on access to responsible credit at the recent CCTA Conference, alongside experts on this issue from government and industry. It was great to hear the views and suggestions of my fellow panellists, in particular the importance of collaboration and the potential for partnerships between mainstream and alternative lenders. As I said at the conference, the FCA recognises the importance of credit in people’s lives, to help people manage their finances and short-term or unexpected cash flow issues. We want to support access to credit for those who can afford it, as we set out in our Dear CEO letter on the ‘FCA Strategy for Consumer Lending’ issued earlier this year. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Let me set out what that looks like in practice. Financial inclusion is a priority At the FCA we’ve made financial inclusion a priority – this is something we are doing across the board, not just in credit but in access to cash, insurance and investment advice. As Nikhil, our Chief Executive, said at StepChange Connected recently, affordable credit helps consumers manage their finances and short-term or unexpected cash flow issues. If you are outside the financial system or cannot access credit, you’ll find it harder to get back on your feet when things go wrong – like the sudden expense of a car or appliance failing. Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Contraction in the high-cost market may have made credit harder to access for some financially vulnerable groups. But we do not want people turning to illegal money lenders. So, we need to take a balanced and consistent approach when we engage with firms. We need to balance inclusion with ensuring that firms lend responsibly. We don’t want to see consumers being given credit that they cannot afford to repay. For some consumers, credit will not be the right answer. We care about financial inclusion and use our tools, powers and influence to improve access and the treatment of customers, prioritising our efforts in areas that have the greatest impact. Collaborating widely Access to affordable credit is not something that the FCA, or any other body, can solve alone – it requires a collaborative approach. All of us, including trade bodies and firms, have an important role to play in engaging on this topic and working together to find ways to tackle this issue. By using our convening power to foster collaboration and innovation, we have brought together government, industry, trade bodies, researchers and other stakeholders to encourage initiatives that support access to affordable credit. This has resulted in some tangible change. For example, we worked with government to make it easier for registered social landlords to direct tenants to affordable credit. The FCA sees an important role for innovation in developing solutions which tackle financial exclusion. We work closely …

In the UK collections industry, security, efficiency, and customer trust are essential. As digital payments become the norm, financial service companies face a unique set of challenges, including managing recurring payments securely, reducing operational costs, and minimising fraud risks. One technology proving highly valuable in this landscape is network tokenisation – the replacement of traditional card details with unique, merchant-specific digital tokens. But how exactly are network tokens helping UK collections? Enhancing secuirty and reducing fraud For a sector handling sensitive financial information daily, security is a non-negotiable priority. Network tokens allow lenders to store a secure token rather than the Primary Account Number (PAN) of a consumer’s card, reducing the risk of exposure in the event of a data breach. This system makes network tokens virtually useless to anyone outside of a specific merchant environment, providing an added layer of fraud protection. In 2023, UK Finance reported that £1.17 billion was stolen through unauthorised and authorised fraud, highlighting the critical need for enhanced security measures. Boosting authorisation rates & improving cash flow A primary challenge for lenders is maintaining high authorisation rates, especially with recurring payments. With traditional card-on-file payments, expired or reissued cards can lead to disruptions, resulting in payment failures and increased collections costs. Network tokens, however, can be dynamically updated. When a card is replaced, the associated token is automatically updated, reducing failed payments. In fact, Acquired.com has observed a notable improvement in success rates of recurring payments with the implementation of network tokens, with some customers seeing up to a 4% uplift in success rates (Source: Acquired.com Hub). In the UK, failed payments contribute to significant revenue losses annually, especially within industries reliant on recurring payments, such as lenders. By adopting network tokenisation, lenders can avoid disruptions, ensuring more payments go through on time. This boosts success rates, helping to stabilise cash flow and making the entire collection process more efficient. Reducing operational costs Another advantage of network tokens in collections is their cost-saving potential. Network tokens streamline payment processing, reducing the need for manual card detail updates and, consequently, lowering administrative burdens. This is especially beneficial for lenders handling large volumes of accounts, where the costs associated with payment processing and transaction management can be significant. Additionally, many card networks impose higher fees for non-tokenised transactions, meaning network tokenisation could reduce transaction fees over time. Simplifying customer experience A seamless experience is essential for reducing friction in the collections process. Network tokens enable smooth payment continuity without the need for customers to re-enter details if a card is lost or expires. This automatic update capability reduces churn, improves customer satisfaction, and allows lenders to maintain continuous payment schedules with minimal disruption. A future-forward solution for collections The utilisation of network tokens in the UK collections industry marks a key step forward. With better security, higher authorisation rates, reduced costs, and a frictionless customer experience, network tokens empower agencies to improve efficiency and meet increasing regulatory and consumer demands. As the industry moves towards digital-first …