Roger Houghton, from Paragon DCX, gives some tips on preparing for the FCA's Consumer Duty.

First published in Society Matters magazine.

The FCA's new Consumer Duty effectively makes customer-centricity a regulatory requirement for financial services firms when it comes into effect next year. The rules set a higher standard for firms who now must ‘act to deliver good outcomes for retail customers’ rather than ‘pay due regard to their interests and treat them fairly’.

Context is key to understanding how consumers behave

As many firms will have completed their gap analysis and implementation plans, one of the next steps will be  reviewing their customer journeys.

It’s important these reflect “how consumers behave in the real world” before starting to assess them. A recent  Microsoft Study[1] found 73% of financial organisations said at least half of their customers’ activities had  switched from in-person to digital at a time when choices were driven more by necessity than preference.

Assessing your journeys using NPS, CSAT or switching data may tell you what customers have done, but it  won’t help you understand how customers behave if you don’t know the full context. Are they a new customer? Is it a product or service they’re familiar with? Is there a sense of urgency or social approval at stake?

Relying on headline data risks relying on assumptions that may no longer be valid. The recent Lloyd’s Digital Index[2] found consumers who were ‘highly digitally engaged’ were nearly twice as likely to have their sleep impacted by money worries than the least digitally engaged. Increased stress is linked[3] with poorer decision-making, so journeys need to describe how customers are feeling, not just the touchpoints they’re using.

Consider how your firm’s behaviour needs to change, not just consumers’

Research by the FCA Practitioner Panel[4] found that while consumers broadly agreed they should accept responsibility for their financial decisions, it was conditional on two things:

1. Consumers feeling they’ve been able to act responsibly

2. Firms behaving responsibly

Customers do not understand financial jargon, so look to firms as experts who can guide them by providing information “at the right time and in a way they can understand.” Customers also need to have confidence in a firm’s behaviour - the types of products they’re offered, the prices they pay, or support they receive - for them to have confidence in their own decisions.

Look at what customers do, not what they say

Finally, the Consumer Understanding outcome requires firms to “test, monitor and adapt communications.” Asking customers what they think, for example by using surveys or focus groups, can be problematic when decisions are driven more by feelings than facts. The most effective method is observing how customers behave and asking about their choices when appropriate.

Technology can also help accelerate this process by automating aspects of user testing. For example, at Paragon DCX, we’ve been evaluating the effectiveness of print and website designs by using an eye-tracking tool powered by AI that simulates real-world results. This tool can quickly tell you where customers are or (more importantly) aren’t looking, to highlight where improvements can be made or where good practices can be shared.

In summary

FS firms have an opportunity to do what’s right for customers in a way that’s right for the business. To do this, firms need to start by looking outside-in (from your customers’ perspective) rather than inside-out (from a product or channel perspective). Taking a step back and considering the outcomes holistically will also help ensure they ladder-up to the cross-cutting rules.

1 https://info.microsoft.com/rs/157-GQE-382/images/EN-WBNR-SlideDeck-SRGCM4447.pdf
2 https://www.lloydsbank.com/banking-with-us/whats-happening/consumer-digital-index
3 https://www.iza.org/publications/dp/8060/effects-of-stress-on-economic-decision-making-evidence-from-laboratory-experiments
4 https://www.fca-pp.org.uk/sites/default/files/fca_practitioner_panel_consumer_responsibility_report_september_2013.pdf

For more information get in touch: hello@paragon-dcx.com