The rise of alternative data: Enabling financial inclusion and catalysing growth

Published 22 May 2025

The landscape of consumer lending is undergoing a significant transformation. Traditionally, lenders have relied on credit scores and historical financial data to assess a borrower’s creditworthiness. However, as financial behaviours evolve and the limitations of conventional credit assessments become apparent, the role of alternative data in lending decisions is gaining prominence.

Fraud: A growing threat to the credit industry, customers and communities

Published 21 May 2025

Fraud is more widespread than ever, causing significant harm to businesses, individuals, and communities. It erodes trust in the digital economy, hampers economic growth, and destabilises vulnerable economies worldwide. As criminals adapt and evolve, the impact extends far beyond financial losses, threatening the integrity of financial systems and consumer confidence.

Trapped in a cycle of misery: The reality of loan shark debt

Published 20 May 2025

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.

Navigating IVA portfolio management
Challenges and opportunities for lenders

Published 27 April 2025

In today’s consumer finance landscape, lenders are grappling with increased regulatory demands, the need for fair consumer outcomes, and the pressure to maximise returns on Individual Voluntary Arrangements (IVAs). While IVAs offer a structured pathway for consumers to manage their debts, they also present lenders with complex challenges. Decisions on IVA proposals need to be both effective and efficient, balancing the interests of creditors and debtors, all while navigating a landscape of evolving compliance standards. The challenge for consistent decision making in IVAs For lenders, deciding on IVA proposals is not simply a matter of reviewing a few key points; each proposal may come with varying levels of detail, terms, and financial viability. This inconsistency can lead to delays or, worse, uninformed voting that might compromise the lender’s returns or fail to serve the consumer’s best interest. Lenders must ensure that every proposal is assessed consistently, allowing them to align their decisions with both internal policies and regulatory obligations. Balancing the pressure for Consumer Duty compliance with returns The FCA’s Consumer Duty requires creditors to act in the consumer’s best interest, which translates to supporting fair and manageable debt solutions. For lenders, this means going beyond the numbers in an IVA proposal to understand if the terms genuinely support a sustainable repayment for the debtor. However, in doing so, lenders face the challenge of balancing empathy with financial prudence. They need to navigate cases carefully, ensuring that decisions maximise recovery potential while promoting viable outcomes for consumers. Ensuring voting accuracy and mitigating operational risks Lenders also face operational hurdles in the voting process. Historically, IVA voting involved substantial manual oversight, with teams needing to sift through lengthy documents to interpret proposal terms and judge alignment with internal mandates. This manual process can introduce errors, especially in high-volume portfolios. Accurate voting is essential; not only does it influence the returns but also contributes to reputational risk if not handled with due care and diligence. Transparence in outcomes: A key to buiding consumer trust Transparency is a growing expectation among stakeholders, and creditors are no exception. As consumers become more informed about their financial rights, lenders must be prepared to demonstrate that their IVA decisions are fair and grounded in comprehensive assessments. Transparency benefits both parties; it reassures consumers that the process is unbiased and aligns lenders with regulatory demands, helping to safeguard against potential compliance breaches. Maintaining accurate records of each decision and establishing clear rationales for each outcome are essential steps to fulfil this responsibility. Data integration challenges in evaluating IVA proposals Lenders often struggle with fragmented data, making it difficult to review IVA proposals holistically. Without a consolidated data view, lenders face delays in interpreting key financial information, which is critical for an informed decision. Integrating consistent data, whether for understanding debtor circumstances or tracking payments, remains a pressing need. Data management challenges can impede lenders’ ability to make timely, well-rounded assessments, which could affect both returns and regulatory compliance. Supporting vulnerable customers in a high-stakes context Another challenge …

Ferrari now accepting Bitcoin
Could this change the car buying experience?

Published 27 April 2025

Ferrari recently announced the extension of its cryptocurrency payments to European dealers. They initially introduced cryptocurrency as a payment method exclusively in the United States. The positive reception to this initiative has led them to expand cryptocurrency acceptance to European markets. Given Ferrari’s prestige and influence among luxury car buyers, how will other car brands respond to this growing trend? Bitcoin: A brief history Bitcoin, created in 2008, pioneered the blockchain technology powering today’s cryptocurrency market. It experienced rapid growth, reaching parity with the US dollar in 2011 and a peak value of over $50,000. While traditional markets remain cautious, the potential for widespread adoption is significant. Ferrari X Bitcoin Ferrari, a cryptocurrency pioneer in the automotive industry, has paved the way for wider digital currency adoption. While private dealers often accept crypto, major brands remain hesitant. Ferrari’s commitment to security and partnerships with crypto experts has enabled them to offer Bitcoin as a payment option, aiming to diversify their customer base. How this could re-shape the car industry The automotive industry is hesitant to accept cryptocurrencies, but some areas of the market have become receptive to the new form of payment. Some luxury car dealers already accept Bitcoin for supercars, with BitCar set up specifically to trade cars for the new currency. The case for Bitcoin is strong, with payments able to be made to anywhere around the world, regardless of exchange rates and void of slow bank processes. Supply chains can benefit from cryptocurrency Beyond consumers, businesses can also reap the benefits. Cryptocurrency, particularly the underlying blockchain technology, offers a potential solution to the challenges faced by automotive supply chains. By using blockchain, manufacturers can track car parts, optimise supply chains, and provide customers with real-time updates on their vehicles. While privacy concerns remain, the potential advantages for the automotive industry make further exploration worthwhile. Reduce your counterfeit risk The extensive tracking and reporting capabilities of blockchain technology virtually eliminate the possibility of counterfeit vehicles. For car dealers, knowing that their inventory is secure and accounted for is crucial. Blockchain can provide this assurance. This transparency extends to car ownership as well. Dealers can easily view a vehicle’s history, including previous owners, ensuring complete transparency for both customers and stock management. How dealerships should react Dealerships must stay ahead of evolving customer expectations. The increasing role of technology in the customer experience highlights the potential of cryptocurrency as a future trend. For dealerships uncertain about the path forward, understanding the pros and cons of cryptocurrency and the steps required for implementation is crucial to preparing for potential shifts in the industry.

Key considerations
Enhancing outcomes for vulnerable customers

Published 17 April 2025

As firms continue to assess the findings from the FCA’s review of the fair treatment of customers in vulnerable circumstances, we explore a critical challenge many firms face: effectively monitoring outcomes for vulnerable customers. Many firms that we engage with believe their training, processes, and support tools are well-designed to mitigate the risk of harm to vulnerable customers. However, many struggle to substantiate and evidence this belief with measurable data and effective outcomes testing. Often, this challenge stems from a limited, one-dimensional perspective on vulnerability and a failure to embed a culture that moves beyond viewing ‘vulnerability’ as a mere compliance term. From what we have observed across the market, several key factors contribute to these shortcomings: 1. Developing a stronger understanding of your vulnerable customer A strong foundation for good outcomes begins with a comprehensive understanding of the types of vulnerabilities that are prevalent in your target market and customer base. Firms must move beyond a generic ‘vulnerable customer’ label and adopt a data-driven approach to identify cohorts of vulnerable customers and their needs, and measure for effective support strategies. Defining what good outcomes look like for those cohorts of vulnerable customers – tailored to different customer needs – is crucial for success. 2. Getting it right the first time Early customer interactions set the tone for the overall relationship. Missed opportunities in these initial stages can have lasting effects. Incorporating root cause analysis within the outcomes monitoring framework can enhance disclosure rates and drive better customer outcomes. Firms that proactively identify and address gaps early on will be better positioned to support their vulnerable customers. 3. Elevating training and education Training should empower staff to understand the deeper implications of vulnerability, exploring how personal circumstances impact customers and their needs whilst also demonstrating empathy. Building critical thinking and decision-making skills will allow teams to provide more meaningful support. 4. Encouraging flexibility and empowerment The FCA’s review highlights the importance of flexibility in solutions. Empowering staff to step outside of rigid processes and standardised support tools is key to delivering good outcomes. Customers should not be forced into predefined solutions that do not meet their unique needs. However, many colleagues fear deviating from established processes due to concerns about quality assurance failures, performance targets, or even financial incentives. Firms must create an environment where colleagues feel confident making customer-centric decisions, tailored to the specific support needs of the customer, without fear of negative consequences. An effective outcomes monitoring framework that measures against a defined suite of good customer outcomes is critical to empowering flexibility and empowerment. 5. Leveraging data for continuous improvement Effective monitoring of vulnerable customer outcomes requires curiosity and creative analysis. Firms must look beyond surface-level data, identify anomalies and investigate underlying patterns. Acting on these insights enables continuous improvement to meet customer needs effectively. Final thoughts By addressing these key factors, firms can enhance their approach to vulnerability and outcomes monitoring, ultimately improving customer experiences and meeting regulatory expectations. For further insights, explore Square 4’s publications …

Moving with the times
The future of responsible lending in a digital first world

Published 17 April 2025

As the financial services industry transitions to a digital-first world, responsible lending must evolve to meet new expectations for fairness, transparency, and customer-centricity. Digital transformation is reshaping how lenders engage with customers and manage their portfolios, enabling more effective, data-driven lending practices that enhance both the lending and collections processes, promoting better customer outcomes while upholding financial responsibility. Automating lending decisions and managing credit risk Central to this transformation is the ability to automate lending decisions and manage credit risk effectively. With the advent of cloud-based decision engines, lenders can now make quicker and more accurate lending decisions, ensuring that processes remain efficient while maintaining fairness. These decision systems can integrate various data sources, including data from open banking providers, AI, and the credit reference agencies, providing a more comprehensive view of a borrower’s financial health. This broader access to data enables lenders to make informed decisions that take a customer’s financial situation and affordability into account, which is crucial for ensuring that credit is provided only when the borrower is financially capable of repayment. By considering affordability, lenders can mitigate the risk of over-indebtedness, safeguard their portfolios and customers’ financial well-being, and reduce the likelihood of defaults and financial distress. By embracing a more holistic, customer-centric approach, lenders can better manage risk, identify vulnerable customers early, and ensure positive, sustainable long term customer outcomes. Identifying and supporting vulnerable customers Responsible lending also requires a strong focus on identifying and supporting vulnerable customers. By utilising advanced technologies, lenders can pinpoint individuals who may be experiencing financial difficulties and provide more tailored, supportive repayment plans. When lenders have access to open banking data, they can monitor transaction histories and evaluate spending patterns to detect signs of vulnerability early and more effectively. This allows them to intervene proactively and provide flexible solutions, ensuring that customers in difficulty are supported and experience the best possible outcomes. Digital-first and seamless loan origination The transition to digital-first processes also encompasses the application journey. Today’s borrowers anticipate straightforward, fully digital loan origination experiences. By automating the entire process through cloud-hosted decision engines, from application to approval, lenders can lower operational costs, accelerate approval times, and enhance the customer experience. This comprehensive, end-to-end automation also ensures that credit risk management remains robust while providing a seamless customer journey. A holistic, customer-centric approach Ultimately, responsible lending in a digital-first world involves more than simply adopting technology for efficiency. It is about employing digital tools and decision systems to make fair, transparent, and informed choices that prioritise the customer’s financial well-being and foster ethical lending practices. By embracing a more holistic, customer-centric approach, lenders can better manage risk, identify vulnerable customers early, and ensure positive, sustainable long term customer outcomes.

Firing on all cylinders
Embrace open banking for operational efficiency

Published 17 April 2025

For many lenders, the affordability assessment process is still weighed down by long application forms and manual reviews from underwriters, leading to long processing times. Brandon Wallace, Product Manager at Bud, explains how enriched transaction data can help lenders to cut costs and scale efficiently, in addition to increasing approval rates and reducing risk.   What is enriched transaction data? Using open banking and enrichment models, fintechs like Bud take raw, unstructured, messy transaction data and identify categories, merchants, locations and regularity of transactions. This data can then be analysed to provide insights so that lenders can quickly assess affordability without relying on cumbersome manual reviews. Faster decisions, lower costs One of the biggest operational challenges lenders face is the resource it takes to manually assess applications. Trawling through bank statements to verify income, understand spending patterns, and understand whether a customer can service a loan are all critical tasks, but are time consuming and tedious steps that slow down decision making. “AI can help automate workflows and processes, work autonomously and responsibly, and empower decision making and service delivery.” according to a report from Google Cloud. Use of enriched transaction data means lenders can automate much of this process. They can verify income, organise spending into categories such as ‘essential’ and ‘non-essential’ spend, surface risky activity (such as problematic gambling, debt collection agency transactions or loan stacking) and identify trends. This reduces processing time and allows underwriters to spend their time on high value tasks rather than data entry and analysis. With these efficiencies, lenders significantly reduce processing times. At Bud, one of our clients cut application times from 40 minutes to under five minutes, while another reduced processing time by 25% for returning customers and 16% for new ones. Reduce friction for applicants A smoother application process isn’t just beneficial for lenders – it’s also a major win for customers. By integrating open banking, lenders can remove friction points such as document uploads, manual income verification and long decision wait times. One of our clients at Bud is now processing 75% of applications in under 15 minutes. These customer experience improvements lead to higher application completion rates and increased conversion. Scaling without compromising accuracy As lenders grow, maintaining high-quality affordability assessments at scale becomes increasingly difficult. Traditional affordability checks, relying on manually reviewing bank statements and credit reference agency data, lack real-time insights and create bottlenecks. Enriched transaction data provides a categorised, real-time view of customer finances, enabling faster, more accurate assessments. Bud’s affordability tools also help lenders standardise affordability checks across large volumes of applications. By automating aspects of the affordability assessment process and reducing manual intervention, lenders can scale up their operations without increasing costs proportionally. The future of lending operations Lenders must find ways to operate more efficiently without sacrificing the quality of their lending decisions. The benefits of open banking and enriched transaction data are much greater than simply assessing risk. They can transform operations, improve scalability and reduce costs. With the right partner, …

Technology and ethics
Delivering financial stability in a rising tide of unsecured debt

Published 17 April 2025

Unsecured debt in the UK reached an average of £4,287 per adult in 2024, marking a troubling trend as household debt has steadily risen over the past two decades. With household debt now exceeding £2 trillion, its impact extends beyond finances, deeply entwining with mental health challenges. Over 1.5 million people in England face both debt and mental health issues, with 40% of those affected citing financial stress as a key factor in their struggles. The cycle of growing financial anxiety and declining mental health highlights the urgent need for a compassionate, effective approach to debt recovery. Unfortunately, traditional methods, such as repetitive calls or generic communication, often exacerbate the problem, leaving consumers feeling overwhelmed and unsupported. Advancing technology to transform debt recovery The debt recovery sector is turning to technology to create more efficient and humane processes. The global debt collection software market, valued at $4.8 billion in 2024, is projected to reach $11.3 billion by 2033, driven by innovations like AI and machine learning. These tools enable automation, enhance efficiency, and remove much of the stress associated with financial recovery. AI-driven personalisation, automated reminders, and self-service portals offer tailored experiences that respect individual circumstances. Data analytics and automated workflows also help agencies identify patterns and insights, enabling them to develop personalised repayment strategies and offer proactive solutions before debts spiral. For example, AI can pinpoint optimal contact times, reducing hassle for debtors while increasing recovery success. These advancements not only improve recovery rates but also reduce operational costs, creating a more seamless and supportive process for all parties involved. Ethics and empathy at the core While technology is essential, ethical standards and empathy must remain central to debt recovery. Collections teams should prioritise understanding and open communication, fostering achievable payment plans that reduce financial strain without undue pressure. Building trust and maintaining positive client relationships are vital to success. Behind every debt is an individual navigating complex circumstances. Agencies that leverage technology to provide flexible, respectful solutions will stand out as leaders in the evolving debt recovery landscape. The future lies in balancing cutting-edge tools with human understanding, ensuring a process that supports consumers without feeling punitive or overwhelming. The sector’s shift toward a tech driven, ethical approach benefits all stakeholders. By focusing on efficiency and empathy, agencies can deliver tangible results while improving the financial and emotional well-being of those they serve. How dealerships should react Dealerships must stay ahead of evolving customer expectations. The increasing role of technology in the customer experience highlights the potential of cryptocurrency as a future trend. For dealerships uncertain about the path forward, understanding the pros and cons of cryptocurrency and the steps required for implementation is crucial to preparing for potential shifts in the industry.

An ongoing commitment to ESG
Equifax publishes 2024 ESG Report

Published 17 April 2025

Equifax launched its second annual Environmental, Social & Governance (ESG) report in February, highlighting the continued importance as part of its business strategy. Underpinned by their key priorities – Consumer Impact, Community, Suppliers, Environment, Security, Privacy, Culture and Careers, Corporate Governance – sits its core values and purpose of ‘helping people live their financial best’ and using the power of data to make a positive impact. Equifax takes inspiration from the one in two adults that do not feel confident managing their money (Money and Pensions Service) and the £24bn in unclaimed benefits each year (Policy in Practice), with a goal to educate both current and future consumers to prevent financial distress, particularly for those most vulnerable using data to address barriers to financial inclusion. Using intuitive data, the Equifax ESG report showcases their progress in diversity and inclusion through employee-initiatives and measurement of diversity statistics through a Self-ID campaign attracting a 65% completion rate, exceeding the 60% target. They also demonstrate consideration to their environmental impact through a maturing data minimisation strategy and Google Cloud impact measurement, part of the global business’ net-zero plan for 2040. (Equifax has) a goal to educate both current and future consumers to prevent financial distress, particularly for those most vulnerable using data to address barriers to financial inclusion. Another key focus is Equifax’s continued work on supply chain transparency and reporting, moving closer to their target of 73% Science-Based Target Initiative (SBTI) suppliers. In addition, it has driven a 196% increase in engagement in their community outreach programme centred on financial education and career education to drive social mobility for young people. The organisation also holds the Bronze EcoVadis rating with sustainable procurement being a key focus for 2025, giving key insights into our effectiveness as a business and how we can work together as a team to address our gaps and improve our transparency. Equifax ‘Speakers for Schools’ partnership is a highlight of the report, showcasing their work delivering a pilot education outreach programme to underserved children from schools in areas of deprivation, enhancing financial literacy and their ability to manage their own finances. In 2022, Equifax partnered with Thrive CSR to measure and report the social value of their work. Aligned to the Social Value Model and UN Sustainable Development Goals. Since September 2022, they’ve reported over £45m in value delivered to society. You can read our full report here.

AI versus human expertise
Why authentic content wins in consumer credit

Published 17 April 2025

The digital space is where consumer credit providers win or lose. In the race to optimise websites, many turn to AI-powered content tools. These promise quick SEO gains and effortless content creation, but relying solely on AI can be a costly mistake. Here’s why human expertise remains crucial for building trust and engagement.   The AI paradox: Inauthenticity and disconnection AI lacks the human touch needed to convey trust and authenticity. It often produces generic, robotic content that fails to resonate with consumers seeking financial guidance. For instance, an AI-generated line like “We offer flexible loan options for everyone!” lacks the empathy that reassures customers facing financial decisions. User experience: AI’s content pitfalls Search engines like Google prioritise user experience, and poorly structured, grammatically challenged AI content creates a frustrating experience. Imagine a financing page riddled with nonsensical sentences. Confused customers will likely leave the page, miss valuable information and hinder your conversion rates. High bounce rates and low engagements also send negative signals to search engines, potentially burying your website in the digital abyss. SEO risks: AI and duplicate content AI rewriting tools can inadvertently create duplicate content – a cardinal sin in the eyes of search engines like Google. Copied content is seen as a manipulative attempt to climb the search rankings, leading to penalties that push your website down the page or worse – delisting it entirely. The sophisticated algorithms of Google are adept at detecting unoriginal content, and the consequences of using AI to rewrite can hurt your dealership’s online visibility and credibility. Why human expertise matters in SEO Effective SEO is an intricate dance involving keyword research, schema markup, and understanding user intent. AI simply doesn’t have the finesse needed to strategically place keywords or leverage voice search optimisation. Without human expertise, your dealership’s website might miss out on crucial search terms related to your specific inventory or services. Imagine wanting to rank highly for “finance lender near me”, but your AI-generated content misses this local search intent. The human advantage: Building trust and driving conversions Consumer credit decisions are deeply personal, requiring clear and empathetic communication. Human content creators craft engaging, tailored copy that addresses concerns and offers solutions. Explaining complex financial terms in a conversational, reassuring tone fosters trust and encourages customer action. Conclusion: AI can assist, but humans win AI can support content creation, but human expertise is irreplaceable. Consumer credit providers must prioritise authenticity, clarity, and trust to stand out, rank well, and connect meaningfully with their audience.

A growing threat
Fraud: A danger to the credit industry, customers and communities

Published 17 April 2025

Fraud is more widespread than ever, causing significant harm to businesses, individuals, and communities. It erodes trust in the digital economy, hampers economic growth, and destabilises vulnerable economies worldwide. As criminals adapt and evolve, the impact extends far beyond financial losses, threatening the integrity of financial systems and consumer confidence. The cost of fraud to the UK economy is staggering, estimated at £219 billion annually. These stolen funds fuel other forms of crime, creating a ripple effect of harm. In 2024 alone, a total of £11.4 billion was stolen from consumers. The number of fraud filings to the Cifas National Fraud Database (NFD) also reached an all-time high, with over 420,000 cases recorded to the NFD last year – a 13% rise compared to 2023. The rapid advance of technology is supercharging the reach and capabilities of criminals. AI is revolutionising the way they operate, enabling them to harvest data at scale, generate near-flawless fake documents within seconds, and execute attacks on networks with unprecedented efficiency. The use of deepfakes and AI-generated voices has made impersonation fraud more convincing than ever, allowing criminals to pose as consumers, business leaders, and authority figures to steal sensitive data and life savings. As a result, fraud is not only harder to detect but also more pressing and urgent than ever before. From our most recent data, Cifas members recorded a fraud-risk case to the NFD every two minutes, and together we prevented over £2.1 billion in fraud losses in 2024. Here is what our latest insight tells us. AI is amplifying identity fraud Identity fraud is the dominant fraud type recorded to the NFD. This has been the case for many years. Criminals rely on well-established impersonation tactics, luring victims into fraudulent transactions through scam calls promising fake handset upgrades and discounts. Those aged 61 are the most targeted demographic highlighting a need for increased education and protective measures to safeguard these consumers. Account takeovers are a concerning trend Facility (account) takeovers surged in 2024. Mobile phone accounts were the primary target as online retail platforms remained a hotspot, with criminals frequently altering account details or redirecting deliveries to fraudulent addresses. False applications are not slowing down False applications increased by 10% in 2024. AI-driven fraud is also playing a critical role in this trend. Criminals are using sophisticated generative technologies to create high-quality fake documents that can evade traditional verification checks. Money muling remains a threat Individuals under thirty years old accounted for 61% of money mule cases, reinforcing the need for continued education and proactive prevention strategies to deter young people from being recruited into illicit financial schemes. Insider threats are a hidden danger Employees who misuse their access to company systems remain a critical risk according to filings to the Cifas Insider Threat Database, often exploiting their knowledge of internal security measures to evade detection. The need for vigilance and collaboration Our latest fraud-risk data serves as a stark warning: fraud is evolving at an unprecedented pace, and no sector …