The UK regulator Financial Conduct Authority‘s (FCA) new Consumer Duty aims to set higher and clearer standards of consumer protection across financial services. As the needs of customers climb the priority rankings for financial firms, where will the responsibility of these firms start and end?
Here, Fraser Stewart, co-founder and CCO of UK-based fintech platform Lyfeguard, uses his expertise to explain the importance of ensuring positive customer outcomes: beyond simply providing financial products and services:
In an era of rapid digital transformation, the financial services sector is at an interesting crossroads. As technology continues to evolve, creating new opportunities and challenges, the industry is becoming increasingly confronted with a crucial responsibility – ensuring positive customer outcomes. This requires a shift in focus, a change in strategy, and a renewed commitment to consumer needs and protection.
Significantly rising on the agenda has been the FCA’s plans for the coming year, with sights set on accelerating four areas of its work, including putting consumers’ needs first.
The strategy was designed to be flexible with the changing economic picture and highlighted how last year they supported people with the cost-of-living crisis in various ways, leading to £29million being secured in compensation to customers of lenders.
July also sees the implementation of Consumer Duty, which aims to fundamentally change the current culture of financial institutions and encourage more innovation and competition, as it could lead to a more simplified approach to regulation.
Meeting consumer needs in the modern financial industry thus extends beyond simply providing products and services. It calls for a deep understanding of the changing consumer landscape, anticipatory responses to evolving expectations, and a commitment to delivering an exceptional customer experience. The goal is customer satisfaction and success – a state where customers can achieve their desired outcomes through interactions with the financial firm. This requires a customer-centric approach that places the customer at the heart of all decision-making processes.
The advent of technology has transformed the rules of engagement. Digital platforms have democratised access to financial services, but they’ve also raised expectations – in a recent study, 51 per cent of consumers reported frustration with inconsistent digital interactions. The demand for faster responses, more transparency, and increased personalised experiences have in turn surged.
Around 56 per cent of consumers revealed that they most trust the finance sector with some of their most sensitive data, and this should remain respected.
To meet these demands, financial firms must leverage advanced technologies like AI, machine learning, and data analytics. These technologies can help understand customer behaviour, predict their needs, and deliver personalised services.
Calls to Action for Regulatory Framework
The regulatory landscape is also undergoing significant changes. There is an urgent call to action for a more robust regulatory framework that strikes the right balance between fostering innovation and protecting consumers. This framework should encourage financial firms to innovate while holding them accountable for their actions. It should also ensure that the financial ecosystem remains secure and resilient, even as it evolves.
The Consumer Duty Act vows to become ever more outcomes-and data-driven, meaning it shall focus on results over processes, and accordingly simplify any current complexities set by the FCA.
An Inclusive Financial Ecosystem
Financial inclusion is another important aspect of ensuring positive customer outcomes. Despite the advances in the financial industry, 1.4 billion people worldwide remain unbanked.
A more inclusive financial ecosystem provides everyone with access to affordable and relevant financial services regardless of their economic status. This is where FinTech can play a significant role by leveraging technology to reduce barriers to entry, increase access, and democratise financial services.
Currently, 71 per cent of people in developing countries have a financial account, up from 42 per cent a decade ago, and we should only see this increase.
However, creating a more inclusive financial ecosystem is a challenging task. It requires collaboration between financial firms, regulators, FinTech companies, and consumers. It requires policies that encourage innovation and inclusion, financial products that cater to the needs of the underserved, and a regulatory framework that protects consumer interests.
Financial firms can no longer afford to be passive service providers. They must take on a more active role as partners in their customers’ financial journeys. They must understand their customers, anticipate their needs, and empower them to make informed financial decisions. Financial firms need to leverage technology to deliver innovative products and services while ensuring that these innovations do not compromise consumer protection.
In conclusion, ensuring positive customer outcomes is not just the responsibility of financial firms but a necessity for their survival and growth. As the financial industry continues to evolve, the firms that place their customers at the centre of their operations, leverage technology to innovate, and contribute to a more inclusive financial ecosystem are the ones that will succeed. It’s a challenging task but also an opportunity to redefine the financial services sector, create lasting customer relationships, and contribute to overall economic growth.