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Vulnerable customers: Does your digital experience comply with the FCA’s latest guidance?

This time last year, the FCA’s Financial Lives research reported a positive shift in the volume of UK consumers displaying characteristics of vulnerability since the previous survey in 2017. Fast forward to today, and Covid-19 has made its mark. Some 53% or 27.7 million UK adults are now classed as vulnerable customers. Indeed, 38% of us say the pandemic has made our financial situations worse, while 7% of adults claim they struggle to recover from negative experiences.  Unfortunately, the financial services industry can’t directly impact this trend, because the drivers of vulnerability are a function of the economy, health or events. But what the industry can do is mitigate the effects of these drivers by the way they react to the FCA’s guidance.                 

The FCA has been working hard to stem vulnerability for some time, and while the industry has duly stepped up, the regulator has made it clear that there is still work to be done. The release of its draft guidance in July 2019 showcased working examples, high-level recommendations and a rigid timetable through which the regulator planned to glean and review market feedback. While progress faltered in the wake of the pandemic, the publication of a modified Business Plan in April last year addressed the sudden prevalence of digital channels within the financial sector. It provided the first formal guidance as to how firms could better serve their customers online and shore up their defences accordingly.

This was widely welcomed. Lockdown may have closed the digital gap, but it has potentially muddied the waters for this important demographic. Customers who aren’t used to engaging online are potentially more susceptible to making mistakes or struggling in their transaction processes when using a digital device. They may feel rushed in making important decisions, bypass the information they need to make informed decisions or misinterpret valuable context. But with the right tools in place, digital engagement can make identifying and supporting vulnerable customers easier than ever. With the FCA open in its expectation that firms should act with due conduct regardless of the channel, firms have very little room for manoeuvre.

In the announcement that accompanied the publication of the final guidance, the FCA made it clear that, they “will continue to hold firms to account for their treatment of vulnerable customers. Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.”

The digital gap for vulnerable customers

Much of the industry breathed a sigh of relief when the regulator finalized its long-awaited Guidance for firms on the treatment of vulnerable customers. The report clarifies what actions firms should take to understand the dynamics that contribute to customer vulnerability and how their staff can respond to this vital cohort.

The FCA is clear in its intention:

“We want to drive improvements in the way firms treat vulnerable consumers and bring about a practical shift in firms’ actions and behaviour. We want vulnerable consumers to experience outcomes as good as other consumers and to get consistently fair treatment across the sectors we regulate.”

And while the report acknowledges the “significant progress” made in firms’ treatment of customers before and during the pandemic, it stresses that some quarters are “failing to consider the needs of these customers, leading to harm.” The report sets out a series of recommendations that align with the standards set through the FCA’s Principles for Businesses which drive fair customer treatment. These suggestions help firms under its watch to apply a “vulnerability lens” in their actions and conduct.

There has been a massive expansion in the use of digital channels during the pandemic lockdown. Whilst firms can demonstrate how they have trained their staff to look out for signs of vulnerability, how to help and support vulnerable customers and have made changes to products, policies and procedures, there is still a gap when it comes to digital.

When customers are using a disintermediated channel like digital where there is no direct contact with the staff who have been trained to deal with vulnerable customers, how can the firm know whether the customer is vulnerable? How can the firm demonstrate how their business model and the actions they have taken for their digital channels have addressed the FCA’s expectations?    

Training employees to support vulnerable customers

Anyone can find themselves in vulnerable circumstances at any time, as the Financial Lives survey stresses. “Covid-19 has acted as a catalyst to speed up digital trends, but not all consumers have been able to cope without access to cash.” On top of this, consumers have a growing dependence on credit as they bear the brunt of the pandemic. With the increased prevalence of buy-now-pay later lenders as scrutinised in the Woolard Review last month, financial firms need to look out for their customers more than ever. The Guidance stipulates that firms must not only understand the needs of their target market and customer base but ensure that their staff have the skills and capabilities in place to “recognize and respond” to the needs of vulnerable customers.

For firms to enable their staff to recognize and respond, they need to monitor their digital channels using technology to identify individual customers who are demonstrating the drivers of vulnerability. Staff need the right tools to step in as appropriate to use their skills and training to help vulnerable customers.

Modernizing for the digital era

The regulator’s definition of a vulnerable customer is deliberately broad, leaving firms little option but to develop a culture in which looking out for vulnerability becomes engrained in their DNA:

“A vulnerable consumer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”

The report states that if firms are going to understand the needs of vulnerable customers, they need to have a grasp on the drivers behind vulnerability, the impact of this and the effect on customer outcomes.

Training is key to ensuring your staff can recognize these characteristics. Make sure they understand their role in supporting customers and have the backing of your business to do this. Just as importantly, firms need a similar set of technologies for digital to those they have for other channels. Just like you capture and analyze phone calls to customer service, firms need modern digital experience analytics tools in place to monitor and record digital sessions.            

Updating processes and tools

Once your organization has a clear picture of the characteristics they need to look out for, vulnerable customers should be a focus in proposition development and delivery. The FCA stipulates that companies should “respond to customer needs throughout product design, flexible customer service provision and communications.” Look at your proposition through the eyes of a vulnerable customer, keeping them front and center in your design, from idea generation, development, testing, launch and review, to ensuring products and services meet their needs.

Customer experience should be underpinned by processes and systems that “support and enable vulnerable consumers to disclose their needs” and enable firms to “spot signs of vulnerability.”  The regulator calls out the need for systems that highlight information about customers’ needs, aiding appropriate service and communication regardless of individuals’ channel of choice.

Digital monitoring technology can help find vulnerable customers

The guidance highlights monitoring as a clear-cut way of assessing whether firms are “meeting and responding to the needs of customers with characteristics of vulnerability.” And this will pay dividends in driving the insight that’s required to pinpoint where improvements are needed.

While the arm’s length nature of remote engagement has left some firms scratching their heads as to how they can stay close to their customers, digital interactions present a huge opportunity if designed and managed correctly. Firms should using automated tools to monitor and record the millions of digital interactions they have with their customers across web and mobile apps.

Unlike telephone, face-to-face or paper-based engagement, digital customer journeys are often modified and personalized, independently of user-selected options, or by issues such as accessibility. By automatically recording every single session and interaction, you can create a valuable 360-degree perspective of the individual digital journey while building an audit trail in the process. Underpin this with the right machine learning capabilities, and the collective insight can be used to build a repository of behaviours that typify certain customer profiles. This makes it easy to identify breaks from the norm which may need additional oversight or support from a skilled member of staff.

The guidance recognizes that digital is critical component to serving vulnerable customers well. It calls out the potential for “modern innovations like artificial intelligence (AI) to deliver personalized content during a digital journey [which] means that customers could receive products and services appropriate for them which result in good outcomes.” And in a fiercely competitive market in which financial providers are judged as much on their values and actions as they are on their services, getting it right is a win-win.

To learn more about how to transform your digital experiencefor vulnerable customers, download our guide, Vulnerable Customers & Digital Channels.

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Vulnerable Customers & Digital Channels

How financial services firms can protect customers while fulfilling regulatory obligations

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