Are you doing your Customer Duty?

Five ways for UK Financial Services to measure up to the newest Financial Conduct Authority regulations.

On July 31^st the UK Financial Conduct Authority’s (FCA) Customer Duty regulations officially came into force. Meeting the minimum requirements of the regulatory deadline may be a significant milestone for UK financial services, but it’s just the beginning. Customer Duty represents a paradigm shift for the industry requiring deeper understanding of customers’ needs, financial literacy, and personal financial goals, requiring a new, more rigorous approach to marketing.

Why is the FCA focused on Customer Duty?

The FCA has made it clear that it’s ready and resourced to take swift action on firms or institutions that fail to deliver on Customer Duty requirements.  

At the highest level, the new rules are designed to ensure that UK consumers are offered products or services that meet their needs and offer fair value. There is a particular focus on providing customers with communication they understand and empathetic customer service that supports them to achieve their personal financial goals.

This regulation was developed to address well documented issues with trust and transparency in the UK financial industry.

The recently published FCA Financial Lives Survey 2022 revealed that only 41% of UK adults, or 21.9 million people, had confidence in the UK financial services industry. Only 36%, or 19 million people, agreed that most financial firms are honest and transparent.

1 in 10 UK adults also reported being offered a financial product or service at a price, or with terms and conditions they felt were completely unreasonable.

Over half (51%) of UK adults said they didn’t receive any communication from financial services providers within the previous 12 months that helped them make decisions about their financial goals or wellbeing. Of those that did receive communication from providers, 4.3 million people reported that they found the content hard to understand, it arrived at the wrong time for them and didn’t align with their current financial needs.

These numbers significantly were worse for people with one or more financial vulnerability: poor health, recently experienced a negative life event e.g., divorce, bereavement or had low financial resilience or literacy. 

This research challenges the UK financial industry’s progress on diversity, inclusion and equity and  undoubtedly impacts financial brands’ reputations, loyalty, and potential lifetime customer value.

It would be easy to think about this new financial regulation as a burden, but if effectively embedded into your brand strategy, customer experience and marketing programs, Customer Duty presents a significant opportunity to benefit financial organizations growth and profitability as much as it will protect customers.

5 strategies to meet customer needs and regulatory requirements.  

Customer Duty will impact how financial products are built, customer service is delivered, and customer experiences are designed. After reviewing the new requirements, we have identified five strategies to help proactively embrace the new FCA guidance.

1. Build an audience listening system.

Offering the right products at the right time in the right place, and at a fair price starts with asking the right questions through an audience listening system that perpetually delivers foundational and evolving insight and auditable data trails across the entire customer lifecycle. To effectively meet ongoing Customer Duty requirements, you need to ask the following questions:

About the market : What are the prevailing money mindstates? How do people currently feel about the economy, job security, or the long-term value of their savings and investments? How optimistic are people about their financial future? What are your competitors focused on? What gaps are there in the market? What specialist or niche financial needs are not being met? How well is your brand known and understood in the market?

About your target market: Who are you targeting and why? What’s unique about their attitudes and behaviors? What are their specific challenges? What’s their level of financial resilience and literacy? What are their fundamental social values? Who/what do they trust? What are their financial goals?

About your customers: Why did they become a customer? What are their immediate, mid- and long-term expectations of their relationship with you? When and how do they want to communicate? What information are they willing to share so that you can deliver more personalized communications? What is their perception of their financial resilience? How do they perceive their own financial knowledge and confidence? What does their financial behavior tell you about them [customer data analytics]?

About your most valuable customers: Are they getting what they want and need? What is their next goal? What else can you offer them?  

About your most vulnerable customers: How can you fill gaps in their financial confidence and knowledge? How can you guide them? How can you anticipate financial challenges? How can you empathetically and proactively support them through financial challenges/difficulty?

2. Develop customer journey led planning.

Customer Duty demands fair and transparent customer experiences at every stage of the customer lifecycle. Customer journey mapping is a critical precursor to deploying a fully customer centered product, content, service, and support strategy.

This involves more than mapping end-to-end processes and establishing key performance indicators. Successfully complying with Customer Duty should start with a deep understanding of your customers’ emotional context and the personal financial outcomes they need to achieve at every stage of their relationship with your brand. This is achieved through customer co-creation and validating your journeys by a cross section of your target audience i.e., consulting different age groups, genders, and in particular, customers with different levels of financial confidence and knowledge.

Building customer centered journey maps allows you to identify gaps and fine tune your processes, content and customer service at each stage of customer engagement. Importantly, it provides a customer first mechanism to actively demonstrate to your regulators that you understand what matters to customers, have audited your processes and adapted your services and communication to improve delivery across the entire end-to-end customer experience.  

3. Embrace inclusive design.

Customer Duty is not just about ensuring that your current products stand up to audit requirements and standards, it implies that inclusive design should become a core tenet of your innovation and new product development process.

Inclusive design means creating financial products, services and communication that are accessible and usable by the widest cross section of people regardless of disability, age, economic situation, language, gender, race or financial literacy.

It requires talking and listening to a wide range of people at the beginning, middle and end of your product or service development processes. It requires setting aside often entrenched professional beliefs and personal perceptions to prioritize different perspectives. Inclusive design means innovating with intent and committing to making design decisions that are focused on including, not excluding people.  

4. Create resonant communications using the customer’s language.

On the surface, it may seem unfair that the same regulators demanding more effective customer communications are those requiring extensive legal disclosures about financial products and services. Customer duty increases the onus on financial services providers to simplify their language. This means learning the language that customers use and mirroring that. It means removing financial jargon and replacing it with outcome focused explanations.

For an easy example, let’s take product nomenclature from business banking. Why talk about Treasury Management when you are really talking about managing cash flow? Why discuss ‘payables’ when you mean how you pay suppliers or ‘receivables’ when you mean how you get paid? What about stopping talking about Merchant Services and starting to talk about ways that you can let customers more easily pay you?  

Another good example of challenging traditional financial language come from Wave, a small business fintech that offers a full suite of simple, easy to consume financial services from basic invoicing to accounting and integrated payment solutions. Wave provide all the legal disclosures expected but next to each paragraph, they provide a simplified explanation e.g., when they fully explain their policies on data disclosure, next to their explanation is: “IN SIMPLE TERMS: There are times when personal information does need to be disclosed. You have the right to know about these situations, so we’ve listed them here.” When they talk about when and how they specifically disclose information to third parties, they explain: “IN SIMPLE TERMS: We also occasionally need to share personal information with service providers. This is especially true for complicated tasks like transferring money electronically. We take the same high level of caution, and ensure the information is used only for the purposes needed”.

5. Monitor, measure and adapt.

Proactively developing an integrated score card across the customer journey will make it easy to demonstrate your understanding of customer needs. The score card should combine customer research measures, customer data and industry bench marking. Always on monitoring is possible but not helpful when needing to conduct considered decision making to deliberately change complex systems in big organizations. More practically annually, ideally quarterly, you should have a measure of customer advocacy, communications effectiveness and customer service performance.

Underneath these high level metrics you require diagnostic data highlighting areas for improvement and identifying highly effective strategies that can be amplified and repeated. Building the score card should not be about just measurement, it should be the basis for a culture of continuous improvement and customer centered innovation.

Delivering on these new regulatory requirements may require additional investment but ultimately, all of these things will make a positive impact on your bottom line. If you deliver a fair exchange of value to your customers, they will be loyal and advocate for you. To discuss how the Metia Financial Services team can help you build, execute and measure the impact of your Customer Duty requirements, reach out to liz.high@metia.com.