Experian: Lenders need to understand where risk is as cost-of-living ‘crunch’ looms

The cost-of-living crisis is set to be felt more acutely by consumers in the coming months, according to Experian’s chief economist, but different data sets will help lenders to identify the risks to households and consumers.

In a recent episode of Open Banking Expo TV, ‘Navigating the cost-of-living crunch’, Experian’s chief economist and director of market intelligence Mohammed Chaudhri revealed the factors behind the current economic backdrop.

Speaking to Open Banking Expo’s head of content Ellie Duncan, Chaudhri said: “At Experian we’ve been calling out the challenges associated around the impending increase in energy prices – just around the corner in April – for nearly six months now. Gas prices continue to reach new record highs, hand-in-hand with other energy prices which continue their upward march.”

Mohammed Chaudhri

He added: “For some households – typically the more affluent households – the cost of living hasn’t crunched yet. But that crunch is coming and it will be here in a few months.”

Chaudhri said that with the average rate of inflation is, at this moment, at 5.5% in the UK, which is the highest it’s been in nearly 30 years, some households are already living with “the day-to-day impacts of price increases”.

But Natalie Hammond, head of product and proposition marketing at Experian, explained that while the current economic environment presents risks for lenders, there are also opportunities too – and that it all comes down to data, and how you apply analytics to understand and act on it.

“It is, obviously, a trying time from an economic perspective. If we look back over the last few years, there have been different points in the environment where the economy has faced strain, whether that was Brexit, with the pandemic or, even further back, interest rates rising at a much faster rate,” said Hammond.

“It all comes back to the need to be able to understand where the risk is.”

Natalie Hammond

She pointed out that different data points at the macroeconomic level, the regional level, household and individual customer level can provide valuable analysis in regards to understanding stress.

“Taking it down to the customer level to look at the implications on those and their affordability and on their stress, is going to be even more important to be able to not only understand really granular forecasts around risk and capital, but also being able to look at what treatments are needed and what groups need what. It becomes a case of determining what the outcomes are from these economic risks,” Hammond added.

To watch this episode of Open Banking Expo TV in association with Experian, click here.