Consumer Duty: an opportunity for innovation

Today’s economic backdrop is tough. Major events such as the Covid pandemic and ongoing war in Ukraine have fuelled an inflationary environment that has many people and businesses facing a cost-of-living crisis.  

Indeed, according to PwC, some 8.9 million people experience ‘financial fragility’. In addition, one in two are under-served by financial products or solutions on the market that help them manage their finances.

Introduced by the Financial Conduct Authority (FCA) in response to falling levels of consumer trust, Consumer Duty represents a new set of rules and guidance which urges companies to do more to put the interests of their customers first and deliver improved outcomes. 

It highlights the need for banks to protect those customers with vulnerable characteristics, an intention which is certainly welcomed.  

However, definitions of what constitutes a vulnerable consumer are too static. They fail to consider the dynamics of life, and that we are all at risk of dipping into vulnerability or being underserved at some stage. For example, a change in career could trigger a volatile income status, or interest rates rising could leave the previously secure in a more vulnerable financial position.

Financial services firms therefore need to listen to and develop ways to understand the changing needs of their customers. This will enable them to provide fairer products at the right time, for the right person, offer superior customer support across their use of the product or service, onboard and off-board customers with greater ease, be aware of changing needs, and provide clear and accurate information to help make smarter and more informed decisions.

What is stopping this from happening?

Unfortunately, financial services organisations have not been able to create an offering that tunes into the needs of people with complex and changing circumstances throughout their lifetimes. 

The challenge is complex and there are a variety of factors. However, many of the constraints likely come down to a lack of technological infrastructure to handle the required level of flexibility, which most banks are working towards but with caution and weariness of the risk. In addition, it is difficult to escape the reality that banking models have been designed to generate profit and satisfy shareholders – these are businesses, after all, and need to operate sustainably. 

This means some organisations are not fully exploring the suitability of their products beyond a static timestamp, a problem made more difficult by the reality that many banks simply do not know enough about their customers’ financial journeys. This is a problem that is potentially compounded by an incremental erosion of customer trust.

Shifting the dial in three steps

While the arrival of Consumer Duty is timely and well-intentioned, there is a real risk that consumer experiences will not live up to the expectations it sets. 

However, the opportunity to evolve and innovate; creating a new breed of products and services should not be ignored, and there are some tangible steps organisations can take that will help them meet the expectations set by Consumer Duty. 

First, financial services firms must invest more in understanding their customers’ needs, motivations, and behaviours. 

This will involve speaking with customers and conducting in-depth primary qualitative research to gain a more complete picture of the non-linear nature of individual lives. Interviews with real users can feed the creation of an output framework like JTBD or personas which more accurately represents the possibility of change as part of a financial life – these will ensure digital products are evolved with a more complete picture of customers in mind. Beyond primary research, there are means of gathering an understanding of customers, including the use of customer support teams, marketing data, forums and product usage data. 

In addition to this, having a 360 degree view of the customer by using data to offer the right support through delivering targeted messages at the right time, surfaced where customers expect them, can help drive engagement with banks.

The process will take time. However, it is important to note this can happen as part of iterating digital products, and doesn’t necessitate halting the development journey altogether. 

Step two is all about being clear with communications. A key part of Consumer Duty relates to the way in which organisations design and distribute content to their customer base, the FCA is particularly concerned about digital products accompanied by too much technical terminology or jargon for users to comprehend. 

Of course, the technicalities of products and services must be explained. However, this needs to be done with simplicity and clarity in mind – important terms need to be thoughtfully placed in the customer journey in bite-size pieces. Tell customers what they need to know, when they need to know it, in plain and simple language. 

Third, companies should assess their roadmaps for the development of new products. This should be based on understanding the value different features will bring to different customers, making the ongoing gathering of insight into who is using what products, what they are trying to achieve, and whether they are successful, essential. Based on this insight, features and initiatives can be prioritised based on the amount of value they bring to customer groups and how and where the value maps to a reduction in cost in other areas of the business. 

Financial services the road ahead

Banks and financial providers should move towards a portfolio of products that are meaningful, truly inclusive and have a longer lifespan than what is currently out there. The lens through which products are developed needs to be a long-term one – this will enable organisations to build a customer base with a genuine reason to remain loyal throughout all the key stages of their financial lives. 

At present, the way in which banks are set up and operating threatens to stifle progress. However, it's unfair to criticise banks for any pre-consumer duty failures. Many are working within the limitations of their technology infrastructure and regulation, and now having been asked to work within consumer duty remits, they have had little clarity on 'how' they can truly achieve the best outcomes the duty aims for. There is hope for a happy outcome. With technologies getting smarter and more connected, data is feeding us more insight than ever so there is a real opportunity ahead for banks to innovate and thrive, to be a vital lifeline for customers and their changing lives and financial pictures and still operate in a sustainable way.  

It’s true to say that a change of mindset will be needed, and one that recognises the role that financial services firms will need to become, in many ways, social enterprises that provide lifelines for some customers.