Many people will turn to credit to get through the winter. Many more will review existing credit arrangements to make ends meet. Those already struggling to make their repayments will be looking to their lenders for support. Is the industry ready to respond?
Based on two reports issued by the FCA in November, it appears not.
In this post we continue to bust some myths and misconceptions we’ve heard around the implementation of the new Consumer Duty, and look at how Open Finance solutions can help firms achieve better customer outcomes.
In this post we’ll bust some myths and misconceptions we’ve heard around the implementation of the new Consumer Duty, and look at how Open Finance solutions can help firms achieve better customer outcomes.
It’s fair to say I’m not the world’s most patient person. My inner voice is constantly telling me “Not far enough! Not fast enough!” And indeed, our industry has seen real progress, but there is always more to do.
Our deeply-embedded mind-set has been to manufacture products and then find consumers to sell them to, rather than focusing on our customers and their wants and needs. But this is going to change.
I’m referring, of course, to the regulator’s Consumer Duty of Care. With the final rules published this week, implementation is due to take effect in April 2023 (or possibly later in the year if delayed), there are concerns over what additional burden regulated product providers will be required to shoulder. What we do know is that Consumer Duty will put big, expensive and, let’s be honest, pretty alarming responsibilities on any financial services business.
The new Principle 12 states that “A firm must act to deliver good outcomes for retail consumers.” No hiding places. No buck-passing. No closing the sale and walking away. If you serve the retail market, you must act to deliver good outcomes.
I simply cannot see how firms can meet their new Consumer Duty obligations without building their customer relationships around Open Finance and more broadly Open Data. In the old, soon-to-be-departing, product-centric world, it has been sufficient for firms to relate to customers purely in terms of the product/s they’ve sold to them.
But a customer-centric view of the world means taking a genuinely holistic view of your customers’ finances.
The kind of data insights necessary to recognise and meet customers’ needs – and to keep meeting customers’ needs over the lifetime of a contract – can only be derived from a platform that aggregates the customer’s financial position, and automates the analysis for both the consumer and the provider. Thereby positioning the right products and services to the right people at the right time to achieve better outcomes across their entire financial life.
This represents a 180-degree shift of responsibility. The onus is now on providers to tell their customers when they have something better or more suitable in their portfolio – and invite them to make the switch if they choose to do so.
Let's take one of the most simple and straightforward examples. If a borrower’s life was going well and the Loan to Value (LTV) ratio on their mortgage changed so that they became eligible for a better interest rate, a lender should, under Consumer Duty, alert them to a more suitable product immediately.
Providing the data-driven insights that can underpin individual, personalised propositions like this is at the heart of what Moneyhub does. And we can provide them either directly to the customer or, with the customer’s permission, to firms providing products and services, so they can create tailored communications and propositions to meet individual customers’ proven needs.
Moving towards an Open Finance-based, data-driven, customer-centric model is wonderfully, transformationally good for business, good for profitability, and good for efficiency.
We’ve come a fairly long way, but there’s a long way still to go – and the next leap forwards is the move to aggregating individual customers’ data, from banking and pensions to loans, investments, mortgages and properties, and making use of the insights it just can’t stop providing.
Consumer Duty certainly presents an alarming array of demands and challenges, but it also presents an even broader array of fabulous opportunities, and these need to be embraced.
So, my plea to the industry is to take this seriously, let legacy thinking be legacy and consider how you can take this regulation and turn it into a real opportunity for your business and your customers. The results will be truly fantastic when the hidden value in your customers data is unlocked to achieve better outcomes for all.
Worried about complying with the new regulations? Check out our Consumer Duty resources or get in touch to explore our solutions.
The Financial Conduct Authority’s (FCA’s) new Consumer Duty regulations are due to be published at the end of July 2022. FCA regulated businesses have been given notice that between then and April 2023, when the rules come into effect, the FCA will be looking for evidence of progress towards compliance.
The regulations aim to raise the bar on Consumer Outcomes beyond Treating Customer Fairly and will require businesses to deliver appropriate communications; suitable products and services; good quality after-sales care; transparent pricing and value for money. Businesses must demonstrate suitability from the point of sale and throughout the lifetime of the contract.
An important driver of change for the FCA is the continuing divide between the knowledge of the seller and the buyer - the asymmetry of information - and the exploitation of this by some businesses. Not only is this not good for the consumer but it is also bad for the provider and could collapse a market if unchecked. However this opens up significant opportunities for businesses who can differentiate themselves with much more targeted propositions.
In the financial services market, consumers are not well informed on the whole and providers have limited knowledge of the circumstances and appropriateness of what they sell. Despite fact find and risk assessment processes, consumers are often still mis-sold and end up mis-buying. Even the minority using financial advisers are affected.
With Financial Ombudsman Service complaints up over 90% year on year in investments and pensions and 66% for banking and credit, the market certainly looks headed for something similar to a collapse.
The first of the four key consumer outcomes the FCA wants to address is ‘Communications to equip consumers to make effective, timely and properly informed decisions about financial products and services’.
Consultancy Hymans Robertson highlighted that the biggest challenges for businesses in implementing and demonstrating compliance are:
Accessing data on historic product sets
Identifying the characteristics of end customers without direct connection
Having the right skills, experience and resource to implement the changes needed
During the FCA consultation on Consumer Duty, Moneyhub identified Open Finance as the solution to help prevent a market collapse, bridge the disclosure gap, and to significantly reduce the cost of compliance.
In addition, it opens new opportunities for businesses to use consent-based consumer data to identify and develop new hyper-personalised products based on needs and behaviours.
With ongoing engagement, it provides a means of identifying early warnings of issues and the ability to act to limit detriment using an evidence base. The list of behavioural insights provided would be significantly enhanced by the adoption and facilitation of Open Finance powered tools.
Moneyhub’s Open Finance Technology can:
Aggregate account information from the widest range of sources in the UK - 200 UK financial institutions and 700 products plus international account aggregation
Analyse and categorise income and expenditure and create a net worth position from both connected and manually input assets and liabilities
Evaluate historic transactions, build budgets and forecast cash flows
Identify vulnerability of potential consumer through behaviours, transactions and financial decisions
Detect changes in personal circumstances through connected accounts such as cash movements, changes in income and payment commitments or account closures etc
Provide content and notification nudges to consumers to improve outcomes and address changes, as well as alerting the client’s trusted advisers if intended outcomes are no longer relevant or achievable
The value exchange between a consumer and an adviser or product provider is not a one-off event at the point of a product sale - it is the foundation of a relationship and requires ongoing suitability checks. Users can share their data with advisers, solicitors, accountants or family members (especially valuable with vulnerable customers). They can connect accounts and consume personalised content in multimedia forms, from texts to pension rap videos!
Holistic financial wellbeing can really only be achieved through Open Finance and the two-way exchange of information and insights aimed at improving consumer outcomes. The dividend for the supply side of the market comes as lower acquisition costs; higher retention levels; reduced compliance issues; improved data gathering; visibility of advised and non-advised assets and liabilities and productivity gains from the automation of suitability checks and helpful nudges.
By adopting Open Finance, businesses can ensure that they are exercising appropriate governance across the value chain. Moneyhub’s Open Data powered technology has Consumer Duty compliance baked in. And, the added benefit of unlocking opportunities for businesses to develop hyper-personalised products based on consumer needs and behaviours to fuel growth. It’s win-win!
Worried about complying with the new regulations? Check out our Consumer Duty resources or get in touch to explore our solutions.
Whether you want to create your own solution, or you want us to do it for you—we have the technology for it. Our experienced team is here to support you now and in the future.
