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Caroline Vize, Director of Solutions Consulting at UserTesting

 

The financial services sector has weathered many challenges, particularly in the last few years. One of the most significant changes has been the introduction of the Financial Conduct Authority’s Consumer Duty in July 2023. This new regulatory framework ushered in a paradigm shift, prioritising consumer interests and well-being, and demanding higher communication standards. Simply put, the core objectives of the new Consumer Duty are to ensure that consumers receive fair value from their financial products and services while fostering trust and confidence in the industry.

In practical terms, the Duty states that companies should “ensure that the interests of their customers are central to their culture and purpose and embedded throughout” as well as instructing firms to deliver “good outcomes” for consumers at a fair price and ensure that customer support is helpful and fully accessible.

What’s more, the fines that accrue for non-compliance can be severe, signalling the seriousness of the regulator’s intention to make significant changes in the industry. 

At a time of increasing pressure on financial institutions, the introduction of the Consumer Duty regulation was received with concern by bodies such as UK Finance. However, this new Duty presents an exciting opportunity for businesses to address customer concerns while calling for new ways of working including implementing clear communication processes, prioritising user-centric design, greater transparency and ongoing training. Rather than being a burden on businesses, the Consumer Duty is an opportunity to build trust with consumers, fostering positive change and further strengthening the industry’s relationship with consumers.

As the FCA’s Consumer Duty has been in force for a few months, it’s a great opportunity to look back and analyse its impact on businesses, and how to better implement it.  

The impact of Consumer Duty so far

Many businesses have embraced the opportunity represented by the new Consumer Duty to prioritise the move to a more customer-centric system, with more investment in resources, data and IT/software services. The Duty also provides opportunities for innovation, encouraging financial organisations to think outside the box and develop novel, consumer-focused products and services. This proactive approach not only fosters competitiveness but ultimately benefits consumers by offering them more options that specifically cater to their needs and preferences. 

Encouragingly, a recent survey by CoreData indicates that 54% of professionals within the financial sector do not see Consumer Duty as a burden. This response suggests that a significant portion of the industry recognises the potential for positive change and innovation that this regulatory shift brings. However, it is important to acknowledge that there remains a sizable percentage who view it as a concern. The same study reveals that nearly half (46%) of industry professionals do see Consumer Duty as a burden on their operations, indicating a need for clearer communication and education around its objectives and potential benefits. This disparity in perception underscores the need for more efforts to address concerns and provide reassurance to those working in the financial industry.

Balancing compliance with cost

Meeting the requirements of the new FCA Consumer Duty, building user-centric financial products without burdening the business, requires a strategic and balanced approach.

Creating an easy-to-follow compliance framework for FCA’s Consumer Duty obligations is the initial step to ensuring compliance with the new duty, in a way that is cost-effective for the business. This will likely require a customised system plan, taking into account the organisation’s unique circumstances and capabilities, and emphasising the importance of a user-centric approach. Organisations should consider factors such as the nature of their financial products, client demographics, and distribution channels to effectively reduce the burden on the organisation. 

It’s also important to be strategic when it comes to allocating resources to balance compliance requirements with overarching business goals to reduce the burden of regulatory changes on the business. Prioritising initiatives that directly contribute to both regulatory compliance and customer satisfaction, while deprioritising non-essential activities, will help ensure compliance without overtaxing the business.

A key way organisations can reduce the burden of the new Consumer Duty is by implementing cost-effective solutions such as automation, process improvements, or outsourcing non-core compliance functions. Key processes such as user research can be outsourced to experts in this area, who can deliver high-quality data in a way that is cost-effective and makes compliance easier in the long run. 

Efficiently reducing the burden on businesses

To meet the requirements of the Consumer Duty, financial organisations must prioritise user-centric design principles when developing and offering financial products and services. This means conducting regular and extensive user research, understanding customer needs, and embedding their feedback into the product development process. While this may sound like another burden to place on businesses, the long-term benefits of user research make it an efficient method of updating or launching consumer products and services. 

Firstly, by gaining a deep understanding of their customers’ needs, preferences, and pain points, and addressing these factors over the long term, organisations can design products and services that consistently satisfy customers without the need for frequent reinvention or failure. This will also translate into long-term customer loyalty and contribute to sustained business growth to cushion businesses during hard times. 

While user research does incur initial costs, it ultimately leads to cost efficiency in the long run. By identifying and addressing user concerns early in the product development process, organisations can avoid costly post-launch modifications and customer support issues. Long-term cost savings also accrue from the avoidance of expensive retrofits or rebranding efforts.

User testing also creates a system of iterative improvement and learning, allowing businesses to stay competitive in the face of digital challengers without the need for disruptive (and expensive) changes. This in turn helps future-proof organisations by giving them a competitive advantage in terms of innovation and maintaining a strong market position. This ongoing improvement process also ensures that offerings remain user-centric and relevant to customers.

It should also go without saying that user research, helping organisations stay in touch with their customers’ needs, will help satisfy Consumer Duty requirements and avoid legal issues and fines for non-compliance. 

Finally, user research often leads to innovation, which is exactly what Consumer Duty requires of financial organisations. Actively seeking user feedback and involving customers in the co-creation of products and services will spark innovation and help drive the development of novel solutions to meet evolving user needs and achieve the new industry standard.

The future is customer-centric

The FCA’s Consumer Duty marks a significant turning point in the UK’s financial services industry, emphasising the pivotal role of consumer protection and transparency. This shift has been mirrored in other sectors, with AI and automation consistently gearing towards meeting customer needs. 

While it has garnered scepticism, the Consumer Duty presents an opportunity for responsible innovation, allowing financial organisations to promote creativity and opportunities for innovation that benefit customers and sets them apart in the market. The Duty ultimately benefits consumers, by encouraging the development of new, customer-centric products and services by financial organisations keen to gain a competitive edge in the market.  

Efficiently implementing Consumer Duty requires a user-centric design, taking full advantage of human-centric feedback and adaptation to ensure compliance, and that Consumer Duty translates into tangible benefits for consumers.

In this ever-evolving landscape, the financial industry must recognize that success lies not just in compliance but in embracing the principles of transparency, accountability, and genuine customer-centricity. By doing so, financial organisations can transform Consumer Duty from a perceived burden into an opportunity to build lasting trust and deliver meaningful value to their users, ensuring the industry remains robust, ethical, and truly consumer-centric.