To help fintechs and challengers prepare for the FCA's proposed consumer duty, we've teased out some characteristics that many such businesses share. It turns out that the proposals affect businesses with these characteristics in novel ways. But fintechs and challengers also have unique strengths that they can play to as they prepare to meet the requirements.
- Fintechs and challengers pride themselves on simple customer journeys. Over-simplified UX/UI could trip them up here. It's worth adjusting the customer experience to avoid over-simplification that may downplay important disclosures. But, armed with the latest systems and technical agility, firms can for example design systems that automate proactive communications to customers about important product developments. UX can also be adjusted to promote customer understanding of any unavoidable product complexity e.g. by requiring self-certifications, displaying disclaimers and giving indicative risk/reward calculations.
- These firms have real strengths in data collection and analysis. They can play to those strengths as they work to implement end-to-end monitoring and testing of customer outcomes as the proposals suggest. They are better placed than many other firms to do so whilst preserving their key USP of being nimble and frictionless.
- These firms frequently offer intermediated access to products from wholesalers that are unused to TCF principles. This is a challenge in that the duty would apply to all firms in the supply chain that materially influence the product or its target market. Fintechs/challengers and their counterparties should work to allocate responsibilities between them for satisfying the duty.
- The proposals call for firms to assess "fair value" i.e. whether prices are reasonable relative to benefits. This is hard to measure in fast-growing product spaces such as fintech. In practice, non-competitive prices will more readily draw the FCA's attention. Interestingly, the FCA views relinquishing privacy as a "cost"; this has unclear implications e.g. for Open Banking services such as budgeting tools - such firms should ready themselves to demonstrate that services provided even for "free" deliver measurable benefits.
- Fintech and challenger products sometimes have complex fee structures (e.g. one-off fees or fees that vary from transaction to transaction) and varying service levels (e.g. longer or volatile payment processing times or volatile returns on savings products). "Avoid surprises" should be the mantra here: clearly set an expectation of the minimum service level and then exceed that expectation where possible, and consider flatter fee models e.g. a payments service with a flat fee to cover payment intermediaries' fees and cross-subsidise costlier transfers.
Do you want more detail on the consumer duty? For all our thinking in this space including other publications, infographics and podcast episodes, visit our webpage.
"Firms should not seek to exploit customers’ vulnerabilities, behavioural biases or lack of knowledge."