How to Turn UK’s Consumer Duty Compliance to Your Advantage

When the new Consumer Duty was first proposed it was easy for financial service organisations to slip into an overconfident mindset and believe they have everything in hand. Customers are always front and centre of business decisions and robust processes have been well-established. However, any organisation affected by the new Consumer Duty updates must step back and appreciate the sheer scale of what’s required. This is no afternoon stroll, it’s a laborious summit attempt at an epic peak.

However, it's also undeniable that there is often an alignment between consumer expectations and what will help to achieve better performance for a financial service organisation. Examples exist across the customer life cycle, ranging from increased uptake and retention from a better alignment of product benefits to customer objectives at the point of sale, through to the collections area, where omni-channel, digital communications can reduce friction and provide the functionality to support customers in repaying the outstanding balance.

Achieving excellence in the Consumer Duty arena could therefore be a differentiator for organisations, as the better the customer outcomes, the better the experiences reported by customers, and the stronger the brand’s reputation becomes.

I sat down with UK lenders in two roundtable discussions in March to explore the different approaches being taken to Consumer Duty compliance. Whilst the challenges came through loud and clear, it was also apparent that the potential upsides are clearly understood.

Hurdles to Overcome

The FCA expects consumers to receive communications they can understand, products and services that meet their needs and offer fair value, and get the support they need, when they need it. The challenges and areas of focus in the implementation of these requirements differ from business to business and I was presented with a selection during the roundtables.

1. Scale of the Changes:

The breadth of the Consumer Duty requirements mean changes are likely to be needed enterprise-wide, with more personalised journeys, processes and decisions taking centre stage, as customer needs, characteristics and vulnerabilities become key actionable insights.

2. Get the Best out of Data

To get past this challenge, firms should be seeking to ensure that their decision making is at a customer level and does not operate in departmental or product siloes.

For lenders with multiple products, this will mean taking account of all the relationships they have with a customer, across all product lines. This will reduce consumer harm by reducing unaffordable lending decisions and inappropriate restructures within collections, by reducing the reliance on assumptions and averages within affordability calculations. Other expenditure blind spots, such as Buy Now Pay Later, can be removed through the use of digital income and expenditure assessments or Open Banking data.

The value of emerging, non-traditional data sources should not be overlooked. In addition to Open Banking, website or app interactions can provide valuable messages regarding changes in customer circumstances or their communication requirements. Making this data available for all decision points that drive customer interactions can help to ensure consistency in actions and ultimately customer outcomes.

With customer needs, characteristics and vulnerabilities being a key consideration of the Consumer Duty, it was no surprise that the identification of vulnerabilities was a discussion point.  Vulnerabilities come in many forms, and processes must be created with accessibility and focus on the inclusion of only positive frictions. Where a vulnerability is flagged, it should drive consistent, appropriate treatment, in all downstream processes for the duration of its existence. Firms are also looking for indicators of vulnerability within their data, where none have been explicitly communicated.

3. Communication

The discussion also flagged challenges around embedding digital servicing, with a need to move towards a channel strategy as opposed to a product focus. Organisations need to hammer out how to deliver good outcomes to consumers, through all of the available channels.

The requirement to monitor outcomes, and remedy processes which are seen to drive poorer outcomes, for some customer segments will require a reactive contact strategy approach, with change capabilities built in.  Solutions that empower business experts to implement these changes will reduce the dependence on IT teams, reduce project backlogs and facilitate faster improvement of customer outcomes.

How to Facilitate the Best Outcomes

Due to the breadth of its scope and challenges, the Consumer Duty requires a number of tools to help facilitate good outcomes for customers. These tools should provide the organisation with capabilities in the following areas:

• Data – The ability to ingest more types of data is key in the development of an understanding of each customer’s characteristics, needs, and vulnerabilities, and then the subsequent reporting and testing of outcomes required by the Duty.
• Machine Learning and Explainable AI – Machine Learning models have been a key component of decision making for more than 20 years. They have not, however, always been the easiest tools to unpick when trying to understand their outputs, and the decisions subsequently made based on them. Explainable AI changes this. By flagging and communicating the key drivers of declined applications, it is easier to support applicants to make necessary improvements to their credit profile.
• Omni-Channel Digital Communications and Self-Service Capabilities – With contact centre service levels specifically flagged by the FCA, it’s important to have alternative contact channels for customers to use which offer convenience and align to their preferences. The availability of digital channels for outbound communications is also important as it allows the selection of the channel deemed most appropriate for that customer and provides easy scalability. The ability to communicate at any point should not be constrained by headcounts.  he inevitability of change should also be highlighted – having the ability to adapt the communication strategy is key for the remediation of pockets of poor outcomes.
• Decision and Outcome Simulation – Tools that provide simulation capabilities can speed up the response to the identification of poor customer outcomes. By understanding the impacts of all change options, staff will be empowered to choose those that provide the best outcomes.
• Reporting – Most organisations have reporting tools and processes which allow them to provide the insights they need. However, there are still a lot of siloed reporting solutions.  Breaking down these siloes by having all the data in one place provides significant simplification for one of the Consumer Duty’s key requirements.

Consumer Duty will certainly challenge the siloed approach to customer management. Organisations should bring their tools together, extract all the best capabilities from those solutions, and put them onto one platform. This enables reuse of those capabilities for multiple cases, and sets banks up for a more holistic, engaging and responsible way of managing customers.  

I will be discussing Consumer Duty implications as part of my upcoming webinar about consumers and delinquencies. Please join us on 23 May for Digital Accelerator Webinar Series: Managing Customers in a Cost-of-Living Crisis.

Learn More About a Platform Approach to Consumer Duty

• Read the blog post FCA’s Consumer Duty Mandates Sharper Use of Technology
• Watch a video on why customer-centric debt collection is critical 
• Read the blog post Empower Your Customers to Self-Serve with Digital Omnichannel Communications