Categorisation as a Service: Identifying customer vulnerabilities using bank transaction data

To protect potentially vulnerable consumers, organisations need to be able to spot them in their portfolios and get a full picture of their circumstances, accurately and in real-time so that they can support and transact with them in the best possible ways.

42% of people with poor mental health found dealing with customer services on the phone confusing or difficult. 25% of people with hearing or visual impairment struggled to follow instructions making it harder for them to interact with services providers, and 33% of people with a physical disability faced difficulties getting to a bank branch.

Without this knowledge providers risk alienating customers, customers suffer a poor experience that could leave them feeling unnecessarily anxious. 57% of people with low capability about money and finances felt nervous, overwhelmed or stressed speaking to financial services providers.

“Protecting vulnerable consumers remains a key focus,” commented the regulator. “It is more important than ever that firms get this right.”

This is exactly what our new Categorisation as a Service (CaaS) engine was developed for.

What is Categorisation as a Service (CaaS)?

CaaS is a new tool from Experian, driven by a suite of machine-learning algorithms, which lenders are using to categorise transactions in a customer’s current and credit-card accounts.

It is the key to building a rich picture of a consumer’s financial circumstances. With 180 different categories, covering both income and expenditure, granular detail is built in. The result is a detailed real-time picture of where money is coming from, where it is going, and any significant changes.

These markers of affordability and potential vulnerability can then be used to identify warning signs in a single account, or spot issues across millions in a lending book.

What insights can CaaS provide for me?

CaaS provides detailed insight in real time to help lenders more accurately spot signs of financial vulnerability in their portfolios and improve affordability and credit risk assessments.

This is based on a more precise understanding of:

• a customer’s true income, its sources and stability
• their regular savings or pension contributions
• level of spending on basic household essentials, mortgages or rent
• patterns of spending highly associated with credit risk or conduct-risk behaviours
• any reliance on short-term high-cost credit
• gambling-to-income ratios
• engagement with debt-collection agencies
• significant life events (such as bereavement, retirement, job loss)
• … and much more

These metrics give consumer-vulnerability and governance teams early warning of potential vulnerability, and chance to offer tailored help.

Instant alerts if consumers show one of the FCA’s markers of potential vulnerability

CaaS data can be used to raise flags in real-time if consumers start to show one of the FCA’s key signs of vulnerability:

• Low financial resilience: CaaS gives early warning about consumers with limited ability to absorb shocks. Instability of income, lack of regular savings, heavy reliance on credit cards, and reliance on short-term, high-cost credit are key markers here.
• Low financial capability: CaaS can highlight consumers with markers associated with low financial capability, allowing tailored support.
• Negative life events: CaaS can be used to identify significant life events such as a possible bereavement, job loss, or significant changes to working patterns that might require support.
• Poor health: CaaS can spot patterns of financial activity that are indicative of customers suffering health problems, allowing lenders to support sensitively.
• Financial inclusion: CaaS can help identify younger, gig economy workers, with multiple jobs and seasonal income to confirm their annual income and get access to less costly, mainstream credit

Helping the potentially vulnerable

Early insight can then be turned into appropriate help. This might mean:

• Tailored help – such as how to manage high-cost debts more affordably
• Setting appropriate credit limits or offering more appropriate products
• Encouraging consumers to save more
• Validating income shocks without inconvenience to the customer, and offering appropriate support
• Making tailored decisions on credit leeway and holidays

Looking beyond financial services

Use of CaaS is not limited to financial services. Utilities, telecoms providers, online gaming and the public sector have an opportunity to make use of real-time transaction analysis to better inform their understanding of a customer’s vulnerabilities. For example:

• Online Gaming – to more accurately understand affordability and potential vulnerability from persistent gaming
• Telecoms – understanding a customer’s ability to pay and to personalise debt repayment plans
• Utilities – identifying vulnerabilities such as long term spend on healthcare that require a utility to ensure it has the proper support in place for vulnerable customers
• Public sector – confirming entitlement to services and benefits such as affordable housing or child benefits

CaaS helps organisations understand and manage their customers better than ever before. More importantly, it lets them do the right thing, and provide early bespoke support for the potentially vulnerable.