What are the new developments?
As of July 31st 2023, the Financial Services specialism has seen a brand new framework for improving customer duty come into effect. These new rules, known as Customer Duty, centre around creating a better experience for Financial Services customers. In practice, this means customers can expect a higher standard in support, communications, and products. Customers can also expect services relevant to their needs and always offered at fair value. The new rules apply to all new and existing products and services that are currently on sale. For older products that are no longer on sale, the rules will apply from the 31st July 2024.
These changes have been necessitated by an otherwise poor few years for the customer experience. The Financial Ombudsman Service currently deals with around 165,000 complaints annually, reporting “more examples of vulnerability, debt, and consumers falling behind on payments for a product they could never have afforded, with some loans carrying a 35% interest rate” (Financial Ombudsman Service: Annual complaints data and insight 2021/22).
To add to this, as of May 2022 the FCA report “1 in 4 of all UK adults had low financial resilience” with “4.3 million people receiving information from their provider that they could not understand, was not needed or was not timely […] 7.4 million people unsuccessfully attempted to contact one or more of their financial services providers, and 3.6 million people were able to contact one of their financial services providers but could not get the information or support they wanted.” (FCA: Financial Lives survey 2022).
It's clear that Financial Services organisations have a few areas of improvement to focus on, but while there will undoubtedly be an awkward period of adjustment, these changes aren’t necessarily complex. Customers demand clear communication, relevant products and support within reach. Below, we explore what this means for Financial Services businesses in practice.
What do businesses need to do to be compliant?
One of the main criticisms of Consumer Duty is its vagueness and general applicability. While the FCA have provided a basic framework for how to improve the customer experience, businesses are encouraged to create a roadmap for achieving these goals that is better tailored to their product and means of operation. We’ve explored some of the guidelines below.
Businesses need to provide:
effective and accessible customer support - with high-stakes products like mortgages and large loans, customers need a reliable network of up-to-date information and support. Should a problem occur, there should be easily accessible channels of communication. Companies using bots for FAQ’s need to ensure these are optimised to relevantly answer any questions, and not to add another hurdle to the query journey.
timely and clear information - important information shouldn’t be buried in lengthy terms and conditions, businesses must ensure the key aspects of a product/agreement are highlighted clearly. For products subject to inflation, interest, and global politics, information needs to be updated frequently. If not already doing so, businesses should consider utilising online contact streams such as social media and targeted emails.
relevant products and services - organisations need to understand what products are relevant to their clients, avoiding ‘pushy’ marketing tactics. Collecting and utilising data to inform marketing ensures individuals will be advertised products/services that are right for them.
fair value products and services - customers should expect fair, competitive prices with no risk of sudden, inflated bills further down the line.
screening for vulnerable individuals - vulnerable demographics include those in poor health, older individuals, and those with poor financial history or otherwise no financial history whatsoever (this is often the case for marginalised communities i.e.immigrants). Businesses should consider having designated spaces for customers in these categories to seek extra information/support, as well as censoring deals with risky interest rates and providing generally softer marketing.
How can businesses ensure they stay ahead of the game?
Most of what businesses can do to effectively implement Customer Duty is already present in their strategy and simply requires extra optimisation. Foremost, companies need to ensure they are properly accessible to clients. The rise of AI and automation has streamlined much of the administrative side of industry, but for some businesses, this has come at a cost to the quality of their communications. NICE reports that “30% of UK consumers want to see fewer bots and more personalised support” and “53% of businesses believe their customers are very satisfied with their self-service offerings, but only 15% of consumers agree”(NICE: 2022 Digital-First customer experience report). While smart bots are an invaluable tool because they ensure customers can submit queries at even the most unsociable hour in the day, they should not be a replacement.
Similarly, data is an asset most businesses already have, but potentially haven’t optimised to aid in embedding Customer Duty. The Banker advised that a financial establishments “ability to ingest more types of data is key to developing an understanding of every customer’s characteristics, needs and vulnerabilities, as well as the subsequent reporting and testing of outcomes required by the new rules” (The Banker: 2023 UK Consumer Duty to change the face of finance). Collecting, understanding, and using data is key. As mentioned above, this will allow an organisation to quickly screen vulnerable individuals, identify which of their products is right for who, and effectively segment the right audiences for relevant marketing.
Ultimately, maintaining clear avenues of customer communication, and using data to inform discerning marketing strategy are two key ways Financial Services organisations can meet all five of the criteria above. While this may be easier said than done, the new Consumer Duty guidelines certainly do not demand anything a successful company doesn’t already possess. Consumer Duty has created an opportunity for businesses to make better standards and consumer care a competitive differentiator. Provided it isn’t treated as a box-ticking exercise, it can be a tool that enables leaders in the Financial Services specialism to establish a definitive space between their business and the competition.