Dubbed the biggest shakeup to financial services regulation in a decade, the FCA’s Consumer Duty will be enforced at the end of July. The new regulation aims to improve the outcomes for consumers accessing financial services. No small task.
Podcasts, articles, videos, publications, webinars, and news features have outlined the FCA’s plans and disseminated some of the more complex details, often with a focus on specific applications.
A recent ‘Dear CEO’ letter, for example, outlined key areas for those operating in the retail finance space, but questions remain.
What impact will the Duty have on the customer experience? What will the changes mean for merchants? And how can they prepare?
To answer these and to shed a little light on the regulations and checkout finance specifically, Divido recently hosted a webinar titled “How will the Consumer Duty impact retail finance?”
The discussion was hosted by Divido’s Chief Revenue Officer, Edo Volta, and featured industry experts Charlotte Hill, Head of Taylor Wessing Financial Services Group, and Andrew Rankin, Head of Alternative Lending at HSBC.
Here are three things we learned.
1. It’s more than treating customers fairly: you must wear your customers shoes
Looking after your customers may sound like a given, but the Duty takes it one step further to ensure firms are held accountable.
“In essence, the Consumer Duty is setting a clearer and higher expectation for a firm’s standard of care towards consumers. It really does set a shift in the FCA’s expectations of firms. It’s a much more outcomes focussed approach to consumer protection.” said Charlotte Hill, Head of Financial Services Regulation at Taylor Wessing.
“What it really boils down to is the firms putting themselves into the customers shoes [and asking] ‘Would I be happy to be treated in the way my firm treats its customers? Would I recommend these products and services to my friends and family? If it was me, would I be happy with this sort of treatment?’ So that is, in essence, what the Consumer Duty is.”
The duty focuses on consumer outcomes, with a particular focus on vulnerable consumers. Customers can often feel misunderstood by the financial services sector, so the regulator is helping to bridge the gap.
“It’s a really interesting one. If you read certain snippets of the consumer duty you would link it quite neatly across to Treating Customers Fairly. And a lot of firms would then turn around and say “I think we do that already”, said Andrew Rankin, Head of Alternative Lending at HSBC.
“But for me, and the way HSBC is looking at this from a Consumer Duty perspective, this is a much heightened level of making sure that customers get treated fairly. Because we need to make sure the outcome from a customer perspective is a good one. That in itself elevates the regulation quite significantly above I think where we’ve previously been before.”
2. The Consumer Duty will improve commercial outcomes
The Duty gives firms the opportunity to reconsider every aspect of their customer journey.
“If we can get consumer duty right, it becomes a differentiator from a customer experience perspective” said Andrew.
“Because you relook at all the areas and pain points that you had before and say: okay, well that’s not delivering what we would say is a good outcome, so let’s focus on fixing it. And so I really think those that are taking the Consumer Duty seriously can drive a really good customer outcome, but then also off the back of that, a really good commercial outcome as well.”
By improving the customer’s experience, firms can add value to their offering, strengthen their relationships and ultimately improve their products. According to Edo, it’s one of the reasons HSBC and Divido work so well together.
“We ask how we can ensure this new regulation comes in and be an enabler to bringing a better product to market, not a hindrance. And you can use that as an advantage in bringing something to market that is better for customers and ultimately something that can bring more value.” said Edo.
“[The Consumer Duty] is something that focuses on the full end-to-end lifecycle from a consumer perspective as well” said Andrew.
“If I’m honest, some of the conversations I have are very focussed on the top-end funnel: How many people can we accept? I think that, actually, the Consumer Duty shifts the dynamic a little bit, to the end-to-end customer lifecycle, not just the application lifecycle, and I think that’s a really important area that, from a customer point of view, that you can deliver differentiated outcomes from.”
3. It will impact the retail finance market, and merchants will be affected
If there were ever any doubts whether the Consumer Duty applies to retail finance, a recent ‘Dear CEO’ letter should have put them to bed.
“It’s probably fair to say that it definitely does apply to retail finance and I think the FCA’s letter has made that very clear” said Andrew. “I think that is absolutely crystal clear.”
“The way it applies is probably different depending on which part of the value chain you sit in. What the Duty does is put an imperative on that whole value chain to deliver outcomes. It’s not just the lender’s responsibility, it’s not just the intermediary fintech’s responsibility, and it’s not just the merchant’s responsibility.
“I think it forces a collaboration across all three of those different areas – and potentially more – to come together and review that end-to-end customer journey, and make sure that it delivers good outcomes across that lifecycle.”
That, Andrew goes on to say, does include merchants and the way they talk about retail finance products, the journey itself, and delivering good outcomes.
“How do you make sure your communications are really clear? How do you make sure you’ve got the best customer journey? And then how do you support customers through that lifecycle?
“I’d say while HSBC is the regulated lender, and might be the one of the forefront from a consumer perspective to be able to make it work, the end-to-end process needs to have that collaboration.”
Watch the full webinar on-demand.
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