Responding to the Global Challenge of Inflation and Bad Debt
The world is facing a global inflation challenge, compounding a cost of living crisis which is impacting both individuals and enterprises across the globe. These global financial pressures are likely to trigger significant difficulties for communication service providers (CSPs) in the form of bad debt and spiraling revenue risks.
Analysis of 44 advanced economies by Pew Research Center reveals that in virtually every market studied, consumer prices have risen significantly since the pre-pandemic period prior to 2020.
Turkey is seeing the highest rates, at a staggering 54.8% inflation as of Q1 2022 according to Pew Research. Meanwhile, European markets Greece and Italy have seen rates of annual inflation from Q1 2020 to Q1 2022 rise by an eye-watering 20X, and Israel by a stunning 25X.
Pew’s research reveals that in 37 of the 44 nations assessed, the average annual inflation rate in Q1 2022 was at least twice what it was in Q1 2020. It’s clear that inflation is now an international challenge, and one which will already be impacting the risk functions of CSPs.
The causes of inflation are naturally complex, particularly when considering the significant impacts across a global stage. The COVID-19 pandemic has obviously played a major role, triggering business losses, reduced labor forces, and disrupted supply chains. The significant and necessary financial injections by various governments will also have played a part.
Inflation and debt are now a prominent part of our financial ecosystem, and regardless of the reasons at the heart of this landscape, it will have a big impact on people’s wallets, and their ability to pay for telecommunications services.
Responding to the cost of living and spiraling bad debt
As inflation surges, and salaries fail to keep pace, the ‘real-term’ power of people’s money continues to fall. That means they can buy less, with the same money in their wallet. Inflation also has an impact on the cost of debt, pushing up interest rates, and increasing the payment levels for major sources of debt such as mortgages and household loans.
Compounding this inflationary threat is the rising cost of living experienced in many markets. The Russia-Ukraine conflict is a key cause of this challenge, and one which feeds into the wider inflationary pressures experienced across the world.
As a major producer of grain and other key food stuffs, the disruption to food exports from Ukraine has driven up the cost of food around the world, exacerbated by the sanctions imposed on Russia—together the two nations account for more than a quarter of global grain exports. This has all contributed to record high global food prices.
This is particularly challenging in emerging markets, where food can account for 50% or more of regular household expenditure. If food prices rise, that bites heavily into the affordability of everyday living. When it comes to paying for a mobile tariff for example, versus paying for food for your family, it’s clear where the most likely choice around debt exposure will occur.
Even in more developed markets, customers are looking to cut back on less vital expenditure, potentially limiting revenue generation for CSPs as customers downgrade tariffs and postpone product purchases.
Energy prices are another area where cost of living is squeezing household expenditure. There are already early signs of accelerating household debt. Analysis from the UK shows credit card borrowing now at the highest rate in history. At the same time, the cost of this borrowing is on the rise, as central banks push up interest rates in an attempt to rein in inflation pressures. This self-reinforcing cycle is a real risk for enterprises looking to retain customers.
There are some important steps CSPs can take to respond to this landscape. In terms of reducing risk, credit risk management solutions like those offered by Neural Technologies offer a powerful solution.
Thanks to the sophisticated use of machine learning and artificial intelligence technologies, our Credit Risk Management product allows CSPs to deliver actionable, data-driven credit risk assessments, allowing them to monitor and cap debt exposure, and reduce bad debt write-off. It delivers an end-to-end credit risk monitoring solution from customer onboarding across the entire lifecycle to ensure comprehensive credit risk management that benefits both CSPs and customers.
CSPs can also work to deliver flexible credit risk structures that can rapidly adapt to meet changing customer needs and resources. Our advanced Credit Risk Management solution allows CSPs to build automated but personalized customer service pathways that enable affordable credit, prevent bill shock, and deliver service continuity even during financially challenging times.
Leveraging an automated solution will be increasingly critical in this disrupted financial environment. Manual credit risk monitoring and risk analysis will be overwhelmed by both the volume of credit risk cases, and the rapidly changing landscape as it responds to cost of living and inflation shifts. Our Revenue Assurance product portfolio can also help CSPs deliver on these benefits, with automated charging validation that ensures the accuracy of charging with end-to-end integrity checks.
Complex and challenging global financial conditions are likely to persist for the near- to mid-term, as the ongoing conflict in Ukraine and wider inflation risks continue. CSPs need to act to ensure their credit risk functions are fit for this landscape, not only leveraging data to react quickly to changing risk profiles, but with the customer understanding to deliver adaptive credit solutions that maintain connectivity while reducing exposure to bad debt.