It feels like a day does not go by without yet another story relating to consumer debt in the headlines. Take this piece published just yesterday, relating how one young woman found herself £27,000 in debt: not thanks to any one purchase, or what would is often casually dismissed as ‘addictive behaviour’, but simply through spending money she could not afford to.
The consequences, for individuals, lenders (who in many cases have to write off debt) and society at large can be significant. Again, stories relating to the real-world and sometimes tragic consequences of debt are never far from the headlines, something that almost certainly explains why politicians and regulators are taking an ever-closer interest in the subject of affordability.
But what do we mean by ‘affordability’? Simply this:
Ensuring that consumers can afford to purchase the things our business sells to them.
Affordability isn’t new. Most readers will probably be aware that in some industries (most obviously gambling), there are growing regulatory requirements to both know that the money is there, and also know precisely where it is coming from. Which is as it should be. But gambling is merely the tip of the iceberg.
To the best of my knowledge Clare Seal, the subject of the piece linked above, has never gambled a penny in her life. But nevertheless, she found herself in desperate financial circumstances. Is it any wonder that the focus is inevitably beginning to fall on ensuring that sellers behave responsibly in every situation, rather than solely in specific verticals?
We’re already seeing the broader issue of responsible selling on the agenda for mobile games, even if the type of recent law passed in China to limit playing time may be some way off). Is there any particular reason why responsible businesses, keen to advertise their environmental, social and governance (ESG) credentials, are going to dodge the simple question: how do you know your customers can afford to buy from you?
The answer to that is no. Here’s why.
To date there have been two reasons why affordability has not been on the agenda for most businesses, namely:
Both these situations are changing. In terms of importance, as access to credit has become ever easier, so consumers are finding it easier to get into financial difficulties, with results as discussed at the top of this piece.
And in terms of difficulty, it has become incredibly easy to assess affordability, largely thanks to organisations like ourselves in ClearStake. We’ve put great effort into ensuring that any business can get a true picture of a customer’s affordability profile, not just in terms of simple income and outgoings, but instead a real-time picture of truly disposable income and current financial situation.
This matters. Proving affordability has always been a part of our lives. We are asked to do it whenever we apply for a mortgage or a loan, for example. And most of us are aware just how time-consuming and invasive such a process can be. That is no longer the case. It is now possible to share financial data through Open Banking with the click of a button - and more and more consumers are willing to do so.
In other words: it is not hard to check affordability any more. It is easy. And in this environment, for retailers and lenders alike the question is no longer “why should I check affordability?’ but ‘why should I not check affordability?’
An increasing number of jurisdictions understand the need to protect consumers and protect them from financial harm. But even outside of regulation, responsible and sustainable businesses will inevitably move to incorporate affordability into their practices wherever appropriate.
Welcome to a new era in consumer protection.