Tomorrow, today: Modernising financial services to serve future generations
21 August 2019
Far from being just a compliance exercise, the Financial Conduct Authority’s proposed guidance on the treatment of vulnerable customers can provide a catalyst for modernising your business, fostering a more customer-centric culture and re-engaging with a changing society. Are you ready?
The FCA estimates at least half of UK adults may find themselves in vulnerable circumstances at some point in their lives. This includes people suffering bereavement, relationship breakdown (divorce and separation), job loss and illness. The long list of vulnerable customers also includes people who struggle to understand and manage money and financial matters, and people who lack financial resilience.
My own research for Insuring Women’s Futures highlights the particular debt problems faced by young people today – 75% of the over-indebted population are under 45. Less than 40% (37%) of 18-24 year old women and 48% of men of the same age say they feel confident managing their money. A disproportionate number of divorced people also face financial difficulties – 45% of divorced women and 35% of divorced men are in debt. On top of their financial struggles, one in five adults has experienced financial coercion in a current or past relationship.
As a financial services (FS) firm, to serve these financially vulnerable customers, your business clearly needs to be able to relate to them, and to understand their financial lives and situations. The FCA’s guidance on vulnerable customers is the latest stage in its drive for a more customer-led approach within FS. The FCA wants FS firms to be mindful of personal circumstances as they look to ensure that customers’ whole needs are met and their outcomes are fair. The FCA is prepared to intervene if not. And with the huge media and public spotlight on FS conduct, the pressure to get this right goes far beyond regulatory expectations to the heart of trust in your business and its social licence to operate.
Closer to your customers
What all this pressure is pushing towards is a fundamental shift towards a more purposeful strategy and culture – from product push to building solutions around customers. How then can your business move forward? Both my research and our work with clients highlights three key priorities:
- Designs for the way we live today
Designing innovative solutions that cater to society’s real financial risks in life and consider people’s life Moments that Matter. These include our changing work patterns, relationship types and evolving family structures, as well as emerging health and wellbeing issues. It also includes the realities faced by the next generation – for example, the desire to be served by a socially responsible business or paying for nursing care when 100-year life expectancy is routine and there is no home to sell to help fund it.
- Engaging and relevant approaches to building trusted relationships
The foundation for this financial partnership with customers is understanding and trust. The engagement with, and relatability of, a firm with intersections of consumers will define its ability to attract consumers, provide good customer experience and create valuable solutions. Trust across FS varies with higher trust levels for banks than insurers and financial advisers, but marked differences for intersections of society – PwC research has found that 37% of men and 34% of women have high or very high trust in banks, compared with 28% and 22% respectively for insurers, and 27% and 22% for financial advisers. Much needs to be done to improve trust between consumers and firms, more inclusive techniques and innovative approaches to understand consumer behaviour and expectations will be the key to future success.
- Guiding customers through complex decisions
Enhancing customer awareness and creating journeys that guide people through to the solution they need in an informed and relevant way. This includes helping customers to consider their circumstances and ensure they buy products and services that not only meet their basic financial needs but also best respond to their particular situation and support them in life’s Moments that Matter. Innovative approaches include nudges – for example, helping people consider whether a policy should be joint or single named beneficiary, or prompting people to update their pensions expressions of wishes, both of which can help to ensure there are no unintended customer outcomes. Use of artificial intelligence could also help to create more intuitive journeys to identify needs, and building in financial wellbeing to support a better understanding by customers of products and needs, including techniques to incentivising them, will also help improve their outcomes.
Huge opportunity to benefit business and consumers
Delivering what customers need, society expects and the FCA is pushing for, is likely to be a significant leap for your firm. It certainly can’t be achieved without buy-in across the business. But it’s also a huge opportunity. Alongside improving all customers’ outcomes, your business can gain valuable insights into your customers and build stronger relationships with them. You can use these insights to design clear, transparent and informative customer journeys that reflect their life situations, a positive experience for your business and those you serve and help create valuable solutions that meet society’s changing needs.