Optimising retention during the cost-of-living crisis

Over the past year, we have seen the cost-of-living crisis dominate our news headlines. While energy and fuel bills have skyrocketed, salaries have remained the same, leaving many in a challenging financial position.

At the same time, it has been well documented that 2023 is going to be a busy year for remortgaging, with data from UK Finance revealing that 1.8 million fixed-rate mortgage customers will reach the end of their product term this year.

Against this backdrop, there has never been a more crucial time for lenders to focus on harnessing their customer retention strategy and this is increasingly becoming a priority. By utilising the right technology and having a key focus on customer service, lenders can ensure that they’re implementing the right safety nets, at the right time – with the added benefit that this will likely encourage customers to stay on their books for longer, therefore improving retention rates.   ‍

Helping customers navigate cost-of-living pressures  

In order to provide the best possible service, lenders need to ensure they have a strong understanding of their customer’s financial situation. For years, people have been accustomed to cheaper borrowing costs at ultra-low rates. It was just two years ago that we saw average rates of 2%, and customers naturally grasped this opportunity to purchase a larger property or release equity to fund home improvements.  

But customers coming to the end of their current deal today couldn’t be facing a more contrasting set of circumstances. Recent market volatility, starting with last year’s Mini Budget, has caused rates to spiral, and coupled with rising living costs, this has put many borrowers in a vulnerable spot. These customers will be turning to their lender to find the best possible option that aligns with what could be a very different financial situation from when they started their term. Rising council taxes, energy prices, and food prices are also pushing households into fiscal difficulty, not to mention social clubs, leisure activities, and other expenses that lenders must consider when determining affordability and this communication should always be handled sensitively.  

When customers are deciding whether to stay with their current lender, or search elsewhere, they will be looking for a firm that has taken the time to understand the nuances of their current economic situation and sought solutions to support them during this difficult time. As a result, lenders who don’t take their customers finances into account, could hugely suffer.  

Technology is key  

So how can lenders best support their customers in this climate, while enhancing their own retention strategies?  

When a customer is coming to the end of their deal, lenders want to avoid a situation where the deal is no longer competitive and the same customer switches to another lender, resulting in a loss. However, lenders can support customers through a product switch, and keep them on their books longer, leaning on technology to help with this.    

It is important to note that not all lenders offer a product switch and the ones that do are not always aware of the huge benefits that technology can bring to this process. Manual product switches are highly time-consuming and can also cause problems during the underwriting and evaluation process. Technology, however, can greatly improve the speed and efficiency of this transition.  

finova’s Core Banking Platform, Apprivo², has been designed to create a swift and seamless product switch journey by supporting lenders with digital customer onboarding and facilitating complex affordability modelling. In addition to providing lenders with customised SaaS origination platforms, it also gives existing borrowers the opportunity to switch products effortlessly and securely, so that customers can control the timing of their product change.  

Alongside supporting customers through a product switch, for lenders to provide the best possible service they also need to consider existing customers’ differing financial circumstances and price their products accordingly. Apprivo2’s new pricing engine, Optimo, will soon harness this capability following its launch later this year. It will not only enable lenders to find the best-priced products but also provide maximum flexibility for existing customers as they switch products, contributing to strong customer retention rates in the long run.  

Customer support comes first    

The foundation of a good retention strategy is high-quality customer service. Lenders that can build strong, longer-lasting relationships with their clients are far more likely to retain them for a sustained period of time. This very much depends on keeping abreast of customers’ financial circumstances, and navigating any shifts with them, right from the beginning of their relationship with a firm. With the cost-of-living crisis placing unsurmountable pressure on many customers, finding a deal that’s in line with their financial situation is crucial, and lenders should turn to technology to both preserve the relationship with their customers and support them during this time. High levels of retention will come if lenders ensure the right building blocks are in place.