18 November 2022

Consumer Duty: An opportunity to leverage the power of data

This article was first published in Global Banking & Finance Review.

The introduction of the FCA’s Consumer Duty could be seen by many in financial services (FS) as another set of hoops to jump through, whilst donning their SM&CR flak jacket and KYC hat. But in this case, they are wrong. If anything, Consumer Duty is challenging FS firms to go back to basics, to focus on knowing their customers and giving them the best possible product. Something that should have been taking place all along.

Now there is a much stronger business case for getting the necessary work to the top of the development queue. But for financial services organisations to be able to do this, having a single customer view is essential.

The FCA set a deadline of end of October for firms to have plans sufficiently developed ‘to provide both firms’ governing bodies and the FCA with assurance that the expectations set out in the Duty have been carefully considered and will be implemented for new and existing products by 31 July 2023.’ Time is ticking to start implementing those plans and find the right partners to make it happen.

What does Consumer Duty mean for financial services?

Consumer Duty is designed to ensure FS firms are offering the most appropriate product to the customer. It requires regulated firms and consumer organisations to consider the needs, characteristics, and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met. The regulation focuses on:

  1. Products and services
  2. Price and value
  3. Consumer understanding
  4. Consumer support

A large part of achieving good outcomes is right there in point 3 – consumer understanding. Get this right and it makes it possible to deliver on all the other points. With 9 months to sort themselves out, this is where the power of data shows its worth – enabling firms to use cross-product data to create a holistic picture of a customer.

Right now, many banks and wealth managers may struggle to achieve that level of customer insight. With many still operating under a cumbersome product-centric data model, they cannot create a comprehensive view of a customer because the relevant information is siloed. It is time-consuming to compile customer insights in this model due to fragmented data sets, but under Consumer Duty this will not be good enough. Most providers are swimming in data, the question is how do they dive into that data to not only gain a great understanding of the customer, but also comply with regulation?

Unlocking the value of data

Challenger banks have been built with a structure that allows them to analyse and understand data for both customer insights and regulatory reporting. But for established banks and wealth managers, many of whom who have been through the ringer of mergers and buyouts over the decades, the problem is a bigger one – legacy systems. The challenge is bringing siloed data together in one place to allow the business to paint a cohesive picture of their customers.

Unravelling that legacy takes time, but to move forward and deliver products and services suitable for their clients, financial institutions need to ensure they are building new offerings using the right technology. New services must be built on a data structure that provides customer insight in real-time, as well as enabling agile development to deliver the best product and services to those customers. Otherwise, they are setting themselves up for failure.

Cloud-native core banking providers are the holy grail for FS firms needing to comply with Consumer Duty, by helping to rearchitect how core banking services are delivered. This means the process of developing new products and services is simplified and accelerated. This approach unlocks trapped customer value, mitigates risk, and drives real-time data insights.

Going beyond Consumer Duty

The FCA’s Consumer Duty requirements have proven what banks have always known, data is their most valuable commodity. Insights from data are the only way that banks will be able to gain a single view of the customer. This is necessary to provide an accurate assessment of each user, prove their products suit them, and ensure they are helping customers to make good financial decisions. Without this level of visibility, firms could face scrutiny from the FCA or even fines in cases of serious misconduct.

If FS firms didn’t need even more reason to make this change, they should consider this; By putting data at the heart of the build, companies can better understand their clients’ needs and use those insights to create products and services that their clients don’t know they wanted. The availability of real-time data when combined with wider industry insights allows multi-factor analysis that helps predict trends and spot opportunities to both grow and protect the business.

In the current economic climate, this is even more important. Banks that are armed with the right data can gain real customers insights to inform innovative decisions and swiftly launch solutions to help their clients navigate the current economic climate. Not doing so risks both falling foul of the FCA but also of customers moving their banking elsewhere.

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