New rules designed to change the culture and processes in retail banking have been introduced that the regulator hopes will remedy the mistrust that scandals such as the that mis-selling of payment protection insurance bred. The jury is out on whether it will deliver better outcomes for customers but it will definitely have a big impact on what is required of marketers working at financial services brands.
Under the new “Consumer Duty” rules, unveiled today (31 July) by the Financial Conduct Authority and already live, firms will need to make sure their products and services offer fair value to customers. The FCA says this means not being “ripped off” or facing unexpected costs.
Brands will also be expected to offer “helpful and accessible customer support” which the FCA describes as “it’s as easy to sort out a problem, switch or cancel” products, “as it was to buy it in the first place”, as well as timely and clear information when it comes to making financial decisions.
Plus, financial services providers will need to offer products and services that are right for customers, rather than pushing ones they don’t need, as well as better considering if customers are in vulnerable situations, wherein a customer may be facing health or financial problems.
The crackdown comes in wake of a May report from the FCA that revealed the number of people struggling to make their credit repayments on time and pay bills had risen by 3.1 million in the last year to 10.9 million.
‘We needed to up our game’: The FCA on embracing the power of marketing“Firms should be open and honest, avoid harm, and support you to pursue your financial goals,” the FCA tells consumers.
The introduction of the FCA’s Consumer Duty will have a “profound impact” on financial services marketing, Alastair Pegg, former Co-operative Bank marketing director and former head of brands and marketing at Nationwide Building Society, tells Marketing Week.
With a primary focus of promoting fairer outcomes for consumers, the regulation has “compelled financial institutions to shift their marketing tactics with greater transparency, accountability, and customer centricity,” in mind, Pegg says.
Taking the lead
Marketers will be “at the coalface” of the changes says Alex Sword, editor at the Financial Services Forum (FSF), a membership community of financial services marketers.
“This requirement means communications have to be comprehensible to the customer, not misleading, and designed to help them make beneficial decisions,” he says.
However, there is no “big bang moment” coming this week, believes Sword. This is in part because businesses have been anticipating the changes for a long time, but also, “many marketers would emphasise that they are customer-focused anyway as part and parcel of competing and winning business”.
“Product pushing with detrimental outcomes to consumers is not an activity that is good for brand-building, regardless of whether it’s legal or not,” he adds. “The most tangible impact will probably not be with your blue chip banks or asset managers but with, for example, unscrupulous lenders.”
Pressure has been mounting on financial services companies to treat their customers better, given past scandals and the cost-of-living crisis, which has left many struggling to meet mortgage payments because of rising interest rates rising, or higher gas and electric bills.
“Marketing departments in financial services companies have been banging on about the need to be customer focused for years, in all aspects of the customer journey,” says Pegg, adding: “Their calls have been paid lip service by the organisations which have done just enough to meet the Treating Customers Fairly (TCF) rules,” laid out in 2007 by the now-renamed Financial Services Authority.
The new guidance means brands need to be “much more specific”, leading to a “transformation in marketing messages, emphasising responsible lending, unbiased advice and tailored product offerings,” Pegg notes.
However, this regulation poses “challenges” for marketers, according to Pegg who says in terms of compliance and adaptability, it can take time to bed in. But as he notes, it “should ultimately elevate the standards of the financial services sector and foster a more ethical and customer-oriented approach to marketing”.
Why Starling Bank decided to ‘reinvent’ B2B marketingMany organisations have used their customer centricity as a point of difference, says Pegg. The new rules will be particularly interesting when it comes to these firms: “Regulation could erode their point of difference,” he says.
While the changes are welcomed, some aren’t seeing it as an overall good thing. Lisa Wood, former First Direct and Atom Bank marketer and now consultant and senior partner at Open Velocity, says it’s “good to see pressure being applied” by the FCA, “but at the same time very sad the industry itself hasn’t self-regulated to ensure customers are getting a fair deal”.
“We had hoped the rise of challenger banks would put pressure on the incumbents to change their behaviour, but still they persisted in fuelling their old-school profit models,” she adds.
“Now with pressure being applied directly by the FCA, hopefully the tide is turning, but in this day and age it really shouldn’t take a regulator to force what is basic good business practice.”
One such challenger is Starling Bank. “Marketers sit at the centre of firms’ adaption to the Consumer Duty, collaborating with customer service, communications and product teams to ensure that customer needs are being met,” Gemma Johnson, director of digital growth at Starling Bank tells Marketing Week.
Day to day, marketers must be challenged to ensure consumer understanding of communications by testing through various means including readability and accessibility.
Gemma Johnson, Starling Bank
Consumer Duty will force marketers to rethink how they communicate with customers. As Johnson says: “Day to day, marketers must be challenged to ensure consumer understanding of communications by testing through various means including readability and accessibility.”
“Many will have to take a deeper dive on the outcomes linked to communications including looking at product take-up, engagement rates and complaints data that surrounds them, to determine if the product is meeting customers’ needs,” she adds.
Marketers will be trying to work out what the tangible impact of the new guidance will be on their practices. According to Johnson, “There will be a strong learning curve in the short term, but it should lead to a step-change long term where the customer well and truly comes first.”
As Sword from the FSF says: “The optimists will tell you it will lead to better consumer outcomes, whereas the pessimists would say it is just adding to the regulatory burden to prove compliance with something that they were doing anyway. There’s no denying it will be particularly onerous for smaller firms with limited resources.”
However, he believes the new rules are a positive thing, “not just for customers, but for trust in the industry”.