Why UK fintechs need to care about the FCA’s Consumer Duty rules

In one of the biggest shake-ups to how fintech firms approach their customer experience (CX) strategies, the U.K.’s Financial Conduct Authority is introducing new Consumer Duty rules that will  come into force at the end of July for a range of existing and new card accounts, bank accounts, consumer credit, and other financial products like mortgages, insurance, pensions, and investments (closed products, i.e., those no longer marketed or distributed nor open to renewal will come under the remit of the Consumer Duty from July 2024). 

The rules are a wake-up call for fintechs and financial services firms to show clear evidence of how they’re putting their customers’ needs first, how they tell customers about which products and services are suitable for them – and how to give customers the right support.

With these new rules in place, the FCA will assess whether fintechs and finservs are meeting their customers’ needs – and crucially, they will enable the FCA to take action and penalise firms that don’t show proof of good customer outcomes. 

The FCA’s intention is that with improved clarity and support, there will be increased competition and growth, with firms innovating in ways that benefit their consumers. 

What is the Consumer Duty and what does it mean for fintechs?

The scope of the Consumer Duty means firms have been tasked with reviewing their product ranges, communications, and end-to-end customer journeys, and to evaluate changes to governance and accountability, management information and reporting, product design, pricing, distribution, servicing, and staff training.

The FCA has outlined four outcomes for firms to achieve, and which it expects to see evidence of:

Products and services

• Advice and products sold must be suitable for the consumers receiving them
• These should consider any customer vulnerabilities or attributes

Price and value

• Products and services should always represent fair value for consumers

Consumer understanding

• Consumer communications should help consumers make effective, timely and informed decisions about financial products or services
• Communications should be fair and clear

Consumer support

• Customer service should always meet the needs of consumers

The FCA expects firms to not only deliver good consumer outcomes, but to show proof of understanding and evidence of whether those outcomes are being achieved.

From now until 31 July 2023, the FCA is asking firms to:

• Prioritise the areas that will make the biggest impact on outcomes for consumers, especially on areas with the greatest risk of poor customer outcomes and assessing where they are likely to be furthest from meeting the requirements of the Duty.
• Undertake robust assessments of products and services and prioritise activity based on the risk to consumers. Ensuring that any assessments or gap analyses include clear actions as well as owners and timescales for implementation will provide a much clearer rationale for planned activity.
• Make the changes needed so consumers receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
• Work with other firms and partners to share information and ensure they are all delivering good customer outcomes.

Because the FCA has not prescribed specific actions for firms to comply with, but rather expected outcomes it wants to see evidence of, there is flexibility for firms in how they interpret any required changes. However, the FCA is clear that it will take an ‘assertive’ approach to firms that fail to show evidence of implementation, so it is right that firms should focus efforts on their most complex and riskier products and services initially.

How does the Consumer Duty relate to CX?

Ensuring great CX and empowering consumers with the right information means that fintechs should look at how they support customers through their financial journeys, and help them to make informed decisions to pursue their financial objectives. Customer support should be knowledgeable, helpful, and accessible through a variety of channels – email, mobile, post, and other contact channels.

Fintechs will need to keep in mind that communicating with customers requires compliance with regulations like GDPR. While this is done as standard already with GDPR obligations covered, the Consumer Duty rules are a helpful nudge for firms to be mindful of consumers’ contact preferences (email, phone etc), and define when changes to products or services in line with the Consumer Duty may require consumer communication.

Providing clarity in terms and conditions, simplifying language and removing jargon will help consumers fully understand what they’re signing up for, select the right products for their circumstances, and empower them to make good financial decisions.

With CX being such a key focus, the FCA expects payment service providers to develop Strong Customer Authentication (SCA) solutions that work for all groups of consumers, in particular those with protected characteristics, as part of the design process. This means that firms may need to provide several different methods of authentication to their customers. This includes methods that don't rely on mobile phones, to cater to customers who don't have/want to use a mobile phone or need to make payments in areas without mobile phone reception.

How dedicated specialists can help scaling fintechs to meet new standards

The Consumer Duty requires firms to think about outcomes – and this goes beyond a simple checklist exercise of ticking off actions one by one.

As long as firms can show evidence that they have informed the consumer about their choices, then they will meet the Consumer Duty standards. Of course, for many fintechs, especially those at start-up or early scale-up stages, they may not have the in-house resources, knowledgeable staff, or the right CX technologies in place to effectively implement new processes in a timely fashion.

Without accurate data, firms will be unable to make robust assessments and give necessary evidence of good customer outcomes, so it’s important to leverage technology and data analysis capabilities as quickly as possible.

That’s why partnering with expert solution providers, who live and breathe process optimisation every day, can take the strain of Consumer Duty implementation overhauls, and help fintechs to deliver even better consumer journeys. Outside experts can analyse current customer processes to evaluate whether they require further resources to make changes to existing products and services, and provide clarity on the scale and scope of work required.

Third-party specialists can take a full 360-degree overview on current operational processes, identify the most relevant pain points and objectives, and recommend the fastest and most cost-effective way to fix them – and ensure that businesses are compliant and never lose sight of their customers while doing so. By bringing rigour and process to CX operations, outside specialists can generate huge business advantages for clients, and save them from the intensive efforts of doing so in-house.

When that happens, it creates happier customers, longer-lasting customer lifetime value, and stronger, sustainable revenues.