The FCA’s Consumer Duty states that ‘A firm must act to deliver good outcomes for retail customers.’ Does this mean a shift in compliance, culture, or both?
The lenders’ balancing act
As we approach the 6 month anniversary of the Consumer Duty rollout, firms should now be reviewing data regularly to identify, monitor, evidence and stand behind the outcomes their customers experience, and acting to make the changes necessary to improve them. In fact, the FCA now requires all firms to have generated a board report on Consumer Duty by July 2024. The practical impact of regulation is often reduced efficiencies and tempered market opportunities, alongside the significant competition that exists in any financial services segment. It’s fair to say that consumer lending today is complex.
Over the last few years, relentless technological innovation as a result of both customer demand and the pandemic has resulted in a further dynamic for the industry. Mobile and digital services are the preferred channel of interaction, which opens up new ways to serve customers and deliver financial products but demands new protocols and standards. In order to tap into the new digital lending opportunities, it’s critical that financial services providers rethink their technical and operational backbone.
The financial regulatory environment is a constant reference point for the management teams of lenders. It’s never far away from conversations, and it holds significant influence in every single decision made. The Financial Conduct Authority’s (FCA) 12 guiding principles envelop every sourcebook, rule, guidance and consultation ever published. Chief among these is now consumer duty; the fundamental principle of this is that financial services providers should act to protect and drive good outcomes for consumers, and have the ability to evidence this within the organisation’s culture, MI and decisions. Simply put, it means ‘doing the right thing for every customer’ in every action taken.
Embracing Consumer Duty by Design
Perceptions of how governance should operate naturally vary across industries and disciplines. The term governance originates from the Latin word Kybernan which means ‘to steer.’ Hence, the origins of governance suggest a proactive intervention which shapes all of a business’ thinking, actions, and forward planning. It means that organisations dynamically take control of their outcomes, rather than behaving retrospectively, correcting their decisions and acts after they’ve been made.
Adopting ‘Consumer Duty by Design’ means thinking about the customer in every part of business. It continually influences business decisions in strategy, marketing, process design, analytics, operations, human resources and technology. There is no part of the business that is not influenced by Consumer Duty, when embraced as a core business philosophy rather than a routine compliance activity.
Putting customers first and ensuring that good outcomes are driven being driven by actions is a concept few businesses would disagree with. In fact, many publicise mission statements which include ‘customer first’ statements. However, it’s one thing to state that the customer is being put first, and another to truly make the customer central to every decision. In his most important meetings, Jeff Bezos famously leaves one chair empty to remind his senior executives that the customer is the most important member in the room. For many other businesses, short term pressures and structural inflexibility get in the way of a genuine “customer first” mentality.
Personalised Onboarding Journeys and Consumer Duty
There is no doubt where Consumer Duty has to control lenders’ operational behaviours most: onboarding of new customers and helping existing customers who have become vulnerable. Both demand one key approach to treating customers fairly – understanding. The more a lender understands their customers, the better and more fairly they can be served. To use the FCA’s language, it results in a better “customer outcome”. Understanding demands, and asking the right questions, in the right way, engages the customer and makes them feel valued. If this is through digital channels, there has to be a digital conversation – however this doesn’t have to feel like an impersonal robot, and through technology can become a conversation that customers feel highly engaged with.
For this reason, solutions like PrinSIX‘s digital onboarding platform offer lenders the means to curate highly intuitive and personalised digital journeys, simplifying the number of steps in onboarding to the minimum, whilst treating users as the individuals that they are; fully exposing customer needs, financial wellbeing and levels of vulnerability. This way, lenders are able to easily and routinely put the customer first, lending to individual cohorts at scale, and resulting in positive outcomes for both business and consumer without compromising the efficacy of their wider commercial objectives. Conversion is increased, without sacrificing responsibility.
Personalised digital lending journeys must know when a human needs to become involved, as part of the journey. Agent engagement remains an important element, for some conversations will naturally need to be taken by a human.
Continuous Testing Leads to Continuous Improvement
The FCA expects, as a key part of the Duty, that firms assess, test, understand and evidence the outcomes that their customers are receiving. With new banking instruments like open banking data exposing even more insights on customer financial status and health, there are broader opportunities for digital onboarding systems to offer a step change improvement to both customer experiences and their protection from the worst consequences of poor financial arrangements. As new sources of data grow, so too can digital customer journeys, enhancing customer engagement in the long run. However, the benefit of new data sources doesn’t arrive immediately.
Understanding takes time, delaying improvements in customer benefits for customers. Consumer Duty, by design, demands that the time to learn is short. Accelerating these cycles requires continuous testing: agile in execution, iterative in approach, and measurable in impact, and always with customers at their centre. Changes whereby customers are not grouped into cohorts, but where each individual is in a cohort of one. The result? Truly personalised digital journeys, with none of the usual barriers that get in the way of making it happen.
Democratising the Design of Lending Journeys
When journeys (perfected by testing) need to be personalised down to individual cohorts, requiring near-constant iteration, highly complex hard coding acts as a significant barrier. How can a lender be expected to orchestrate their customer’s first journey, when traditional tooling and methods have dictated the need for expert, scarce, and expensive IT resources to deliver change?
PrinSIX’s digital onboarding platform addresses this challenge by empowering the business to own the customer journey, maintaining, and improving it without the need for internal IT resources. It translates learning and insight into execution, through a simple visual editor that even the most techno-phobic users can understand. IT backlogs are removed as one of the key barriers to delivering meaningful change that is centred around customers. PrinSIX places digital lending journey design into the hands of highly experienced people who have a firm grasp of how lending works and the consistent poor outcomes from getting journeys wrong – both in terms of the impact on lowered customer experience and increased risk to the financially vulnerable, while also deeply understanding how to optimise key commercial metrics that turn poor business and customer outcomes into good ones.
Summary and Checklist
There is a strong argument that the regulatory environment of the UK has forced the industry to ‘do better’ when it comes to treating customers fairly, although many inside the industry would argue that the desire has always been there. What has been missing is accessible digital journey technology that can turn those ambitions into actions.
Consumer Duty has created better outcomes and protections for consumers, but it’s also created global leadership in the UK FinTech industry, with technology and process coming together in smarter ways to solve these problems—and it’s happening ‘further and faster’ here in the UK.
Our recommended checklist to adopt Consumer Duty by Design goes as follows:
- Adopt a digital first approach to customer engagement and onboarding.
- Install continual monitoring, iterative testing and validation for continual improvement of onboarding journeys.
- Ensure that onboarding platforms can ‘fine grain’ digital journeys to smaller cohorts of customer to better tune to circumstances and needs.
- Before investing in IT, make sure it offers the ‘cohorts of one’ experience across UX, comms and third-party services and platforms.
- Democratise journey design and iteration to place it in the hands of lending practitioners.
- Embrace advanced UX technologies that boost customer empowerment across multi device and multi session. engagements with a 24/7 delivery capability.
- Audit data security, privacy and operational quality for peace of mind that it is driving the good customer outcomes needed under Consumer Duty.
If you’d like to learn more about how you can enhance your compliance with Consumer Duty, start a conversation with the PrinSIX team here.