After years of pandemic-related stimulus packages and record-low interest rates, Australians are finding it more difficult to manage loan repayments and put food on the table as record-high inflation increases interest rates and cost of living. Our recent Risk Radar report shows that 100% of risk experts surveyed say it’s likely or very likely that customers will experience increased levels of hardship and defaults in the next 12 months.

Our annual Risk Radar report gathers insights from risk experts at Australia’s biggest banks and fintechs. This year’s Risk Radar found that almost two thirds (62%) of Australian businesses surveyed found the volume of customers defaulting and entering collections increased over the last 12 months, while 67% found that the cost of collections had increased. Meanwhile, almost one third (31%) of Australians admit to borrowing more than they used to.

Australians are feeling the pinch of rising cost of living, with Experian Digital spend insights showing that the average supermarket shop has gone up $27, or 34%, to $105 since the start of last year.

Not all Australians are confident that lenders will provide adequate support with greater rates of hardship looming, with just under half (48%) of Australian respondents wanting to see more support and help with avoiding missed payments from lenders. However, in a positive move for Australian consumers, the Credit Reporting Code and hardship regulation changes introduced in July 2022 means that a framework is in place to manage the increased rates of hardship expected for the year ahead.

Tristan Taylor, General Manager Credit Services A/NZ said:

“In the face of rising cost of living and interest rate increases, protecting consumers facing financial vulnerability remains a priority for the industry. Hardship regulation introduced last year has seen information about financial hardship arrangements reported into credit bureaus for the first time, helping consumers to access better support and protection in times of financial difficulty. It also means consumers are safeguarded from a financial hardship arrangement impacting their credit score, providing Australians more comfort in seeking the help they need.”

Meanwhile, with the cost of living increases it’s likely many Australians may turn to alternative forms of lending to help manage their finances. Australians are already some of the most prolific Buy Now Pay Later (BNPL) users, with our 2022 Business and Consumer Insight Report revealing that 71% of Australians have used BNPL in the last year, higher than the global average. One in three of those use it weekly or monthly. Local respondents cited its convenience and greater repayment flexibility as the top drawcards.

The regulation of BNPL use is set to become more stringent following the Federal Government’s release of a discussion paper in late November proposing three models for BNPL reform by mid-2023. The toughest option under consideration would see BNPL products brought completely into the Credit Act, following the same rules as credit cards and other traditional debt products.

Tristan said: “Increased regulation helps consumers gain the same benefits and protections they have with traditional credit products. Leading risk experts are predicting higher rates of hardship and it’s critical that the right consumer protections are in place across the entire credit ecosystem.

“While people who use BNPL are not fundamentally risky, there is a small sub-section that extend themselves too far. Research we recently conducted, in partnership with the University of Sydney and Commonwealth Bank, revealed signs that vulnerable consumers spend more with BNPL and are more likely to hold multiple BNPL accounts.”

Tristan adds:

“All lenders benefit from broader participation by BNPL providers in the credit reporting system, as it provides a clearer picture of consumers to help minimise losses and greatly assists with responsible lending.”

Download the last Risk Radar report for more insights.

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