More than half or 53% reported feeling under financial pressure in 2023, according to the latest survey by Essential Research. 

“The proportion of Australians feeling under financial pressure has remained consistently high [peaking at 55% in July] throughout 2023,” according to research commissioned by the Super Members Council.

High prices weighed heavily on consumers in the previous year, affecting Aussies’ ability to keep up with bill payments. 

Although the recent consumer price index (CPI) showed a softening inflation rate of 4.3% in the November quarter, stickiness prevails across certain areas such as housing (up 6.6%) and financial services (up 8.8%).

Will the current circumstances get better?

Economists expect inflation for the December quarter to fall comfortably under the RBA forecast of 4.5%, a gradual decline but still above the 2%-3% target band of the central bank. 

As the nation waits for the ABS’ December CPI release on 31 January, which expectedly will influence the RBA board’s monetary policy decision next month, many Australians are turning to various solutions to handle the cost of living crisis.

Loans and credits to the rescue, but repayments missed

Financial service institutions have seen a significant increase in the volume of credit applications from new customers across EMEA and APAC regions including Australia, the latest Risk Radar Report by global research firm Experian revealed. 

This is despite the RBA’s consecutive lifting of interest rates, which currently stands at a 12-year high of 4.35%, putting a strain on the budgets of Aussies holding a mortgage. 

According to the InfoChoice Real Hardship Survey in 2023, high cash rates have resulted in half of mortgage holders spending more than 30% of their household income on repayments. 

Many have also been struggling to settle mortgages, with 10.1% saying they had been late at least once and 15.8% had at least one overdue bill. 

Keeping up with financial commitments and the resulting difficulties in doing so have affected borrowers across all ages, with 17.7% turning to lenders or family members to borrow money and 3.6% driven to commit a crime. 

Consequently, 62% of lenders surveyed by Experian have seen an increased volume of customers defaulting, with nearly two-thirds expecting it to rise further. 

With both the household savings ratio and disposable income contracting in the September quarter, Australians may need to stretch their budgets further this year. 

Citing the close ties of credit risk to macroeconomic risk, more than 90% of industry leaders are anticipating missed repayments and delinquencies to persist in 2024. 

Lenders turn to AI to assess credit risks

Despite the sharp increase in hardship and missed payments last year, the Experian report revealed more than half of lenders don't have access to data they need to assess the creditworthiness of customers. 

In fact, 23% admitted to not knowing if a customer is in financial stress until they are notified. 

“This puts pressure on lenders to deliver more accurate predictive decisions at originations and use customer insights to better identify signs of vulnerability, so they can take preventative action before defaults occur,”  said Charlotte Rankin, Experian director of client advisory for credit services.

 “Using the data and the technology available, lenders can intervene sooner to help customers minimise financial stress and maximise financial wellbeing.”

Over three quarters of lenders are actively exploring AI and other new data sources to understand risk in their portfolios and navigate heightened credit risk management. 

AI provides a deeper understanding of every customer and applicant’s financial situation, thus helping lenders identify red flags and make appropriate lending decisions. 

Some of the major banks that are now using AI-powered platforms include Westpac and CommBank.

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