THE RIGHT BALANCE
HOW EFFECTIVE ARE DIGITAL CUSTOMER JOURNEYS?

PrinSix

In May 2020 a Digital Sandbox Pilot was launched by the Financial Conduct Authority (FCA) and the City of London Corporation. The pilot ran from November 2020 through to February 2021.

28 teams took part, to test and develop innovative products and services in response to challenges presented by the Covid-19 pandemic.

FCA BACKGROUND
Our experiences and engagement with the industry indicate that developing a permanent digital testing environment would provide significant value to financial services. The Digital Sandbox pilot was aimed at trialling this environment, by providing support to products and services which are at an early stage of development.

Data has become increasingly pivotal to the way firms operate and engage with each other and the consumers they serve. This means that longstanding challenges like data access and standardisation are increasingly a barrier for market participants and innovators. We also receive requests for support from firms which don’t match the eligibility criteria of the regulatory sandbox, but whose proposals may nonetheless deliver desirable innovations in UK financial services.

We piloted the following features as the foundations of a digital sandbox:

•  access to synthetic data assets to enable testing, training and validation of prototype technology solutions, for example transactional banking data sets, SME lending data and customer accounts

•  an Application Programming Interface (API) market place where digital service providers list and provide access to services via APIs

• integrated development environment in which applicants can develop and test their solution

•  a collaboration platform – to facilitate an ecosystem of key organisations that will provide support and input to digital sandbox participants, such as incumbents, academia, government bodies, venture capital, and charities

•  an observation deck – to enable regulators and other interested parties to observe in-flight testing at a technical level, to inform policy thinking in a safeguarded environment.

We are provided support to innovative firms and organisations looking to tackle challenges relating to, or exacerbated by, coronavirus. The pilot focussed on three pressing areas:

•  frauds and scams
•  vulnerability
•  SME lending.

Between 8-10th February, the teams presented their progress throughout the pilot.

The FCA are currently in the process of determining their next steps regarding future iterations of the digital testing environment. An independent evaluation process currently being undertaken by Grant Thornton will help guide these discussions, with the pilot being assessed against five success criteria:

1. Innovation – role played in encouraging innovation in financial services to the Covid-19-related challenges detailed in the use cases.

2. Speed – role played in enabling quicker testing and development of proof of concepts.

3. Collaboration – role played in fostering collaboration, facilitating diversity of thinking and creating an ecosystem of key organisations.

4. Pilot features – the effectiveness of the key features of the pilot (see below) in stimulating and accelerating innovation.

5. Sustainable future – role played in informing and assisting the design and future operating model of a permanent digital sandbox.

CCTA member PrinSIX was selected as part of the Vulnerabilty Team, tasked with reviewing:

• how can advanced analytics be better deployed to identify and manage the risk that a customer may be in a vulnerable state, or about to transition to one? How can those customers be better supported through human intervention, or other methods?

• how can technology be used to provide or augment bespoke debt management advice to consumers, who may be experiencing, or about to experience debt challenges in order to improve; the quality of advice; the scalability of advice channels to meet unprecedented demand; or overcome the challenge of unavailability of face-to-face debt advice support

• how can technology and/or advanced analytics be used to better manage risk and improve lending and credit services in a world of uncertain and unprecedented income fluctuations?

Their CEO, Julian Graham-Rack, writes here about the experience.

VULNERABILITY – HOW EFFECTIVE ARE DIGITAL CUSTOMER JOURNEYS
The relentless drive towards digital engagement is fuelling an active debate within consumer credit about the adequacy of digital only customer journeys. They meet customers’ demand for convenience and lenders need for efficiency, but real concerns exist within the regulator and support charities that digital journeys fail to adequately detect and mitigate vulnerability risk. Are these concerns driven by a limited understanding of the digital world, or poor digital execution?

What are the limits of digital journeys, and when do humans need to get involved? This was the focus of PrinSIX’s involvement in the FCA’s Digital Sandbox pilot: To consider how digital journeys can best deliver the outcomes articulated in the FCA’s FG21/1 Guidance for firms on the fair treatment of vulnerable customers, and the four categories of vulnerability (Financial Resilience, Competence, Life Events and Health)

The sandbox allowed us to speak to academics, charities, compliance specialists, regulators, and technologists to get a broad perspective of opinions. I should say, the views in this article are mine and should not be considered as representing the opinion of any other individual or organisation. They are nevertheless formed after some insightful conversations with experts.

My conclusion is that neither view is right. Different customers require different onboarding channels depending on their needs and circumstances.

Financial Resilience is best assessed through digital journeys. Digital assessments are data driven, objective and evidence based. The challenge for lenders is whether these assessments are collecting and using the right data to assess an individual’s circumstances, adequately assessing very specific circumstances in a customer’s financial profile. This may be the point that digital journey limitations lead lenders to trigger human intervention. But do these interventions deliver good customer outcomes?

While financial Resilience may be best served digitally, it must be acknowledged that customers’ financial circumstances may flag broader vulnerability risks within the FCA’s other three definitions. These are far more complex circumstances, which digital journeys cannot fully serve. Digital journeys and analytics can be helpful in identifying elevated vulnerability risk in specific areas but identifying a high-risk customer inevitably means an advisor must intervene. Advisor interventions provide their own challenges. Simply moving online questions off-line is ineffective, and the journey moves to a more consultative environment: one that asks open questions, and delegates outcome decisions to advisors.

It’s important to recognise the challenges lenders face when implementing effective advisor led journeys that reliably deliver good, consistent customer outcomes. Embarking on advisor led journeys evokes a whole new set of questions around training and competence frameworks, QA, management oversight and controls. The risk of ‘white noise’ is significant, where the really vulnerable get lost in the processing machine due to the volume of unnecessary referrals. To be effective, human intervention must be targeted, and focused on those at significant risk.

A combination of pure digital and hybrid journeys, if properly defined and executed, has the potential to deliver good outcomes for customers. It ensures that everyone’s objective of protecting the vulnerable is achieved.

So, how in practical terms should digital and hybrid journeys work? When potential vulnerability is identified, what are effective mitigation strategies? How do we give lenders more tools than the obvious one – decline? Does ‘decline’ always deliver the best customer outcome?

The lack of answers within consumer credit to any of these questions is striking. While anecdotal examples exist, there is little best practice and there are only a handful of deployable, replicable strategies within a digital environment. The root causes of this are a lack of collaboration across stakeholders and an inability to run agile test and learn strategies within real lending environments quickly, safely and cost effectively.

So, my overall conclusion? There needs to be a coming together of all stakeholders within consumer credit, working to develop proven, effective, practical, and measurable vulnerability strategies. This requires a fundamental change in how journeys are defined, executed, tested and improved. Done well, it can create a step change in understanding how to deliver effective vulnerability strategies in this increasingly digital world.

In this future vision of ‘doing better things,’ PrinSIX is keen to play its part.

Julian Graham-Rack
CEO
PrinSIX