Sorry for such a bleak opening line, but…
The challenges businesses in the debt industry faced in 2024 are not going to get any easier in 2025:
Operational costs will continue to rise
The regulatory bar will be increasingly complex to navigate
Consumer affordability won't ease and willingness to engage will remain a challenge
And commission rates and commercial models will probably remain the same
Can tech, and specifically AI led tech help navigate some of these challenges?
Grab a coffee and get comfy – we have lots to talk about.
The regulatory bar quite rightly continues to rise – consumers need and deserve better.
In November, the FCA’s revised policy on how we strengthen the protections for borrowers in financial difficulty came into force. Everything in the revised guidance made total sense, drive objective and sustainable solutions for your customers, be consistent, be fair, be clear.
In the next couple of months the FCA will publish their review of how firms are treating customers in vulnerable circumstances. This will encompass the skills and capabilities of staff, inclusive product and service design and the intelligibility of customer communications. (It will also look at the use of disruptive technology – let’s talk more on that later).
Unlike the Trump administration expectations in the US, we don’t expect regulation to lessen, particularly given the latest exchanges between the FCA and Kier Starmer.
But it continues to get harder to balance increasing regulatory pressure with running a sustainable business in this sector
The impact of the governments budget will be felt from April with the double impact of both the increase in the national wage and the increase in employer National Insurance contributions coming into effect.
In the blink of an eye the cost of employing a collection agent in the UK will increase by over 10%.
Finally, is it going to get any easier for consumers with problem debt in 2025? And specifically, are they more or less likely to want to engage with firms about their circumstances?
The Financial Times surveyed 100 economists about the UK economy in 2025, painting a bleak picture for those who are struggling with their finances:
- Wage growth will slow
- Rising unemployment will fuel anxiety
- Inflation will linger stubbornly above 2 per cent, limiting the scope for the Bank of England to cut interest rates
- And the increase in the energy price cap from January will make an immediate impact on affordability
So how does an organisation trying to engage with these customers do so in a way that also satisfies the regulator, and manages increasing operational cost?
Find better things to talk about
The average person in the UK with problem debt has at least 4 other debts. The typical DCA strategy still compromises, amongst other things, as having 3 letters in it. Most organisations in this space would be delighted to get 20% of their consumers to engage with them.
Engaging with consumers about Income Maximisation, social tariffs and building a budget could be a much better place to start. Particularly if you have large volumes of an unengaged portfolio that you can’t reach, or being blunt, don’t want to spend money failing to reach. This is also a great way of navigating your annual review process for plans that last over 12 months.
At Inicio we see consumers that qualify from income maximisation being on average, £348 a month better off. We can set up digital engagement campaigns in 2 weeks.
Build better repayment plans
The cost of a broken payment arrangement is far greater than one that never gets set up in the first place. Really long calls, banking costs and a costly rehabilitation process triggered. But the value of a sustained payment arrangement is golden.
At Inicio our clients are seeing over an 80% completion rate of the I&E process from start to finish and a 91% kept rate of plans they are subsequently putting together.
More importantly, a broken payment arrangement is the tip of the iceberg in terms of a few things that aren’t quite right
The chances are either your agent, your consumer or both of them didn’t quite get to the right level of detail or accurate disclosure. It’s difficult, having complex conversations about a deeply personal situation. Add in perceived judgement, maybe a low level of financial literacy or a language barrier, its no surprise that payment plans break. All the time.
At Inicio we have built accessible routes for customers to disclose their financial situation, powered by AI. When used digitally, it will prompt and nudge the consumer where it doesn’t believe the disclosure is accurate, it will ask for more information where it feels the consumer hasn’t disclosed fully, and it will offer the ability to use open banking to do the work for the consumer.
Support your agents, keep hold of the ones you have, and don’t hire any more
At Inicio we have also built tooling which supports your agent, making sure that those prompts and checks used digitally are also available to them. This not only answers accessibility questions for organisations, it also addresses conduct and regulatory challenges, particularly when outsourcing or taking on new agents. Where we have deployed this we have seen I&E conversations halve for agents.
Talking of taking on new agents.. we’d love to help you create a world where this doesn’t need to be the case. Great agents are hard to find and expensive to train. They are even harder to hold on to as they inevitably want to move on to more challenging work. We are finding that as our clients deploy our solutions, they are finding space in their operation. With a lot of heavy lifting removed, those really great agents can focus on more complex and demanding work.
