Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Australian consumers are battling financial hardship and vulnerability primarily due to high cost of living, rising interest rates, and socio-economic pressures, driving regulators to increase focus on fair treatment and responsible lending.
- While financial institutions are taking steps to address this issue, fragmented and operationally heavy processes hinder them, resulting in poor customer experience marked by delays, requests for excessive documentation, and complex procedures.
- Australian banks must define and implement a financial hardship management framework founded on proactive engagement, personalized support, and sustainable outcomes.
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The harsh reality of financial hardship
Financial hardship and customer vulnerability are rising concerns in Australia, driven by persistent cost of living pressures, rising interest rates, and socio-economic disruptions.
In response, regulators such as the Australian Securities and Investments Commission (ASIC), Australian Financial Complaints Authority (AFCA), and industry bodies like the Australian Banking Association (ABA) have sharpened their focus on fair treatment and responsible credit practices, especially in the management of both secure and unsecure financial products (see Figure 1). Furthermore, under the National Credit Code, lenders are legally required to consider a customer’s hardship request and work toward a fair solution.
Figure 1: Consumer protection regulatory requirements at a glance
Australian regulators emphasize that identifying and appropriately responding to hardship and vulnerability is not only a legal obligation but a key component of ethical and sustainable customer care. Financial institutions are encouraged to build inclusive systems that enable early detection, respectful engagement, and meaningful support tailored to individual needs. This will help customers while allowing banks to control default and associated losses.
Despite good intentions, existing processes are fragmented, reactive, and operationally burdensome, both for customers and staff. Customers face lengthy wait times, requests for excessive documentation, and complex procedures across channels. The lack of early detection tools and real-time data triggers means that support is offered too late, after the customer has already fallen into severe arrears. These challenges can deter vulnerable customers from seeking timely help, leading to avoidable defaults, emotional distress, and reputational risk for lenders. Let us look at some numbers on customers’ financial hardship that reflect the scale of the issue.
- 35% of customers dropped out of hardship applications due to difficulties in accessing assistance.1
- 40% of customers who received hardship assistance fell into arrears after assistance ended.1
- 54% increase in hardship notices in the last quarter of 2023 compared with 2022.2
- ~42% of total hardship notices (187,000 out of 444,000) were for home loans.3
- 80% of hardship notices related to owner-occupied home loans.3
In light of this, Australian banks must adopt a comprehensive, empathetic, and operationally sound approach to supporting customers in hardship. Financial institutions must identify key drivers of vulnerability, understand regulatory expectations, and implement differentiated strategies for secure and unsecure product portfolios. Designing and operationalizing a robust financial hardship management framework can help Australian banks to turn into a ‘friend in need’ for customers in distress, building loyalty and trust.
Innovate to support: What banks must do
In our view, Australian financial institutions must design a financial hardship management framework centered on empathy and outcomes, moving from reactive to proactive customer support.
By integrating AI tools, banks can build a predictive and scalable framework, ensuring that the right support reaches the right customers at the right time, enabling them to easily navigate hardship and vulnerability while retaining dignity.
To be successful, a financial hardship management framework must be founded on three key pillars: proactive engagement, personalized hardship support, and sustainable positive outcomes (see Figure 2).
Figure 2: The three pillars of a robust financial hardship management framework
Banks must not wait for customers to self-identify hardship or vulnerability. Instead, they must proactively detect financial stress and offer support, which can prevent issues from snowballing and demonstrate banks’ commitment to customers’ financial wellness, winning their trust and loyalty.
Banks must use predictive analytics and AI to proactively spot signs of financial stress such as missed repayments, rising credit use, or unusual transactions and intervene before issues escalate. By tracking risk across the full credit lifecycle, banks can engage early, triage urgent cases, and build trust through timely support. Deploying AI backed systems that incorporate behavioral analytics and voice pattern detection can be invaluable in early identification of stress and deviations in payment behavior. The system handles the complexity, in addition to providing a complete view of the customer by integrating previous call records, payment history, and hardship applications, leaving the frontline staff free to focus on crafting a solution for the customer.
Customers in hardship often feel anxious or ashamed. Banks must avoid using standardized templates that make people feel like a number. What is needed is personalized messaging tailored to fit individual contexts in language that is compassionate, supportive, non-judgmental, and easy to understand. Training frontline staff in trauma-informed practices can ensure every interaction acknowledges the customer’s emotional state. This includes simplifying application forms, providing multilingual support, and enabling customers to talk to a human who truly listens.
Hardship support cannot be one-size fits all. Banks must design personal hardship assistance options for individual customers based on their unique context. Such options can include a range of flexible solutions such as repayment pauses, reduced interest rates, tailored repayment plans, and debt consolidation options. The approach must be tailored to empower customers to select a path that suits their unique circumstances.
Banks must infuse flexibility into the hardship support process, ensuring that assistance is available in the customer’s preferred channel—be it digital or physical or a mix of both. Self-service tools, such as hardship portals or AI-powered virtual assistants can streamline the process for customers inclined to access support digitally. The financial hardship framework must be carefully governed to avoid bias, ensure transparency, and uphold ASIC’s RG 271 guidelines on fair and consistent treatment. However, dedicated human hardship specialists trained in case management and financial coaching must handle complex or sensitive cases. Human oversight remains critical in hardship and vulnerability cases where emotion, ethics, and empathy intersect.
Hardship and vulnerability often coexist—a customer can be vulnerable and may also be facing hardship at the same time. For example, a customer who is struggling to meet mortgage payments may be finding it difficult to service credit card or personal loan obligations as well. In such cases, absence of holistic case management can result in multiple adverse effects for both the customer and the bank.
Banks must put in place an integrated case management system to gain a holistic 360-degree view of the customer and coordinate support across departments. Collaboration with external support services such as financial counsellors, legal aid, or mental health organizations can further enrich the customer journey, providing wraparound care that extends beyond banking.
Banks must move beyond resolving hardship cases and focus on long-term outcomes. This includes continuous monitoring of customers’ financial health, using AI models to predict re-entry risks and triggering timely interventions such as financial coaching and restructured repayment plans. In our experience, customers frequently struggle to adhere to the restructured repayment plan once the assistance ends, often slipping back into hardship.
To sustain the positive outcomes enabled by the assistance over the long-term, banks must closely monitor customers once the assistance period ends. This will require banks to proactively identify signs of financial stress through predictive analytics of spend patterns and other transactional data, offer personalized financial wellness programs, integrate hardship support into digital platforms, and track post-assistance outcomes. Training frontline staff to recognize stress signals early and partnering with community organizations can boost support.
A relentless focus on positive outcomes is a win-win: customers gain stability and confidence while banks benefit from lower losses, better retention, and a stronger reputation—this approach offers the added benefit of aligning with regulatory expectations, reducing complaints, and fostering trust.
From theory to action
Trust is the currency of hardship and vulnerability management.
Banks must navigate the hardship and vulnerability management journey discreetly and diplomatically, without subjecting the customer to embarrassment or humiliation. Customers must feel confident that seeking help will not result in penalties, black marks on their credit file (when avoidable), or judgment. Banks must clearly communicate the process, the options available, and what customers can expect. They must be open to answering even the most basic questions of customers, which will go a long way in removing fear and uncertainty. And last but not least, as AI technologies become integral to hardship support, ethical considerations must be front and center.
While putting in place an AI-backed financial hardship framework is imperative for Australian banks, this journey is not without pitfalls. Adding a hardship and vulnerability layer to their existing operating model will come with challenges around integration with legacy infrastructure, privacy and security, explainability, bias and hallucination risks, compliance, staff resistance, skill and knowledge gaps, and scalability issues in integrating AI tools into IT infrastructure. Success will depend on effectively overcoming these challenges. In our view, banks must adopt a step-by-step implementation roadmap spanning the following:
- Align AI strategy with business objectives, defining a clear path to realizing returns on investment.
- Implement an iterative rollout model; for example, banks can start small with AI-based early hardship prediction and subsequently expand into monitoring, sentiment analysis, and dynamic repayment plans.
- Overcome limitations of legacy IT systems through phased modular adoption and application programming interfaces (APIs) to integrate analytics platforms.
- Ensure compliance with data privacy and security regulations when using cloud platforms.
- Design solutions centered on customer needs—focus should be on long-term financial wellbeing that prevents re-entry into hardship.
- Ensure responsible AI by establishing robust governance frameworks to oversee AI models.
- Invest in financial literacy initiatives, offering resources and tools, conducting workshops, and streaming digital content to help customers make informed decisions and build resilience even before hardship arises.
- Ensure final decisions are taken by humans—do not replace human judgment with AI.
The way forward: Compassion at scale
Financial hardship and vulnerability are no longer edge cases, they are central to today’s lending environment in Australia.
Regulatory focus on consumer protection is only going to increase accompanied by a corresponding rise in hardship management obligations for banks. In addition, hardship experience is a critical component of overall customer experience (CX), a key differentiator in the commoditized and competitive financial services industry.
Financial institutions must envision the kind of experience they want customers to have during hardship and vulnerability phases and take steps to ensure that the required solutions are in place. Real success does not lie in helping customers once, but in ensuring that they do not come back again—and AI makes this shift possible. This means that banks will need to design a financial hardship framework with the flexibility to perpetually adapt to evolving requirements. However, building a framework centered on predictive, preventive, and human-centric care that will sustain over the long-term will demand concerted effort and consistent investment in data management, analytics frameworks, and digital and advanced AI capabilities.
To turn vision into reality, banks must consider partnering with a technology provider with the requisite domain and implementation expertise after a comprehensive market analysis. And sooner the better, for early movers will benefit by winning the trust of their customers, turning them into loyal and staunch advocates.
References
- 1 ASIC, ASIC report: Australians need better hardship support from their lenders, May 2024, Retrieved November 2025, https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2024-releases/24-104mr-asic-report-australians-need-better-hardship-support-from-their-lenders/
- 2 ASIC, Hardship, hard to get help: Lenders fall short in financial hardship support, May 2024, Retrieved November 2025, https://download.asic.gov.au/media/ud5mhogp/rep783-published-20-may-2024.pdf
- 3 ASIC, Report 782, Hardship, hard to get help: Findings and actions to support customers in financial hardship, May 2024, Retrieved November 2025, https://download.asic.gov.au/media/w35baapb/rep782-published-20-may-2024-20240809.pdf