In 2023, understanding consumer finances is more important than ever

Unless you have been living under a rock for the past 6 months (not a bad option, in fairness), you will be well aware that the cost of living crisis is having a real impact on individuals and families not just in the UK, but around the globe.

A perfect storm of economic downturn and spiralling inflation has left more people than ever before at risk of falling into financial difficulty. In fact of the 89% of UK adults reporting a rise in the cost of living, 60% are spending less on non-essentials and 52% are going so far as using less energy at home. And of course for many, the economic shocks we have been through recently have led to a far more severe change in circumstances.

At the same time, the increasing use of buy-now-pay-later (BNPL) services, on top of more traditional forms of debt, can make it harder than ever both for consumers to understand their true financial situation, and for the businesses they deal with to do the same. But of course, it has never been more important than ever - for all the same reasons. 

This doesn’t only apply to the gambling sector, of course. The UK government has already made clear that it expects any provider of financial services to take additional steps to protect vulnerable customers. Similarly, those making lending decisions must be more careful than ever before. Organisations that in some circumstances assess customer finances - letting agencies or institutional landlords are a classic example - are likely to do so more often than previously.

And of course, at the really sharp end of this landscape, debt consolidation companies and lawyers or accountants dealing in bankruptcy or insolvency are going to be busier than ever. All these organisations need an effective way to check customer finances.

Isn’t that what credit checks are for?

Well, yes and no. Credit checks, and the credit data they are based upon, can certainly give many good insights into an individual’s financial situation. But they have four critical drawbacks in situations such as these:

• They are a lagging indicator - which is additionally problematic in an environment in which things are changing quickly
• They don’t really provide proper financial information. It isn’t possible to understand someone’s disposable income or salary on the back of a credit che