Nurturing loyalty
Are you building loyalty in your new recruits?

Published 09 February 2022

Covid has turned our view of the world on its head. Our sense of belonging and connection has changed significantly, our habits and routines have altered, and our appreciation of things has shifted. Businesses discovered that it’s a face-to-face transaction that generates real loyalty, customers connect with people and the impressions they make, their helpfulness, service and attitude. In contrast, the web-based world is as loyal as the service is good. Without the face of a person and someone to connect with, once something goes badly, loyalty is switched off and it’s just too easy to go somewhere else. It’s now just the same for employees. More and more employers are finding it challenging as individuals continue to look for flexibility and security, whilst also placing increasing importance on the work-life balance. If you’ve taken the plunge and moved to a “working from home” policy permanently then engaging your employees from the outset and gaining that connection will be critical. Today, new recruits can move onto the next job within days of starting with you, being remote from the outset makes the connection with new recruits incredibly important. Just like customers, it’s easy to go elsewhere. Wages have also been pushed higher and recruits are no longer willing to accept travel costs to their place of work. On the contrary, they are looking to increase their wages to pay for their home working costs such as electricity and heating. The home working or hybrid package is yet to settle down, recruiters are competing with some impressive packages right now. In the pre-Covid office environment, there was generally a team approach that was nurturing for new recruits, easing new members into the team with a buddy or support system. Now with hybrid or home working, the way new recruits find their feet within the team has changed considerably and has become challenging on both sides. To add to the complexity, for the first time in history, there are up to five generations in the workforce at one time: the Traditionalists, the Baby Boomers, Generation X, Millennials, and Generation Z, are all making up the modern workforce and vary in ideals and expectations. Creating the right hybrid model for workforces will be a key challenge for business leaders in 2022. This new way of working requires additional investment, balancing the right amount of online manager time for everyone, helping new recruits get the right support from training, team leaders and colleagues and additional mental health awareness support and engaging online activities. Getting a laptop in the post and a quick call with IT and HR isn’t going to create any loyalty in those critical first few days for your newest recruits. At TieTa we have been managing these challenges continuously over the last twenty months. Most of our clients, who are choosing to outsource their customer contact strategies or simply bolster their internal teams with additional support from our experienced agents are happy to adopt a hybrid approach. Some in highly regulated …

What lies ahead
A view of potentially worrying trends

Published 09 February 2022

Members will no doubt be aware of the continued focus by the FCA on the assessment of consumer vulnerability as part of their ongoing Consumer Duty consultation. They have made it clear that more is expected from lenders with a recent survey highlighting 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. Having listened to and participated in many discussions over the last twelve months, there seems to be a general consensus that of course this should be taken seriously, but the regulator must assess each lenders approach proportionately and relative to their offering and customer base. There is no one-size-fits-all approach, but data and process should lead the way. Although some may feel this is a topic that has been talked to death, it is not without good reason given the current landscape. In the wake of the pandemic, lenders, regulators and the government came together to provide unprecedented measures to support consumers through what was an extraordinary situation which very few had planned for. However, moving into the “new normal” it is clear that as that support may be reduced there are some significant challenges. At Data On Demand we have seen some potentially worrying trends from our own ID.VU data which aggregates consumer loan application data to highlight changes in circumstances. We are also able to map this back to the FCA’s characteristics. The below excerpt highlights some of the statistics and application volumes we saw in October following the raft of changes to government backed support including furlough ending, cuts to universal credit and the end of payment holidays: • 729,000 individuals making high-cost credit applications • 92,000 making high-cost credit applications who had not before • 10,000 making high-cost credit applications to pay household bills • 6,000 applications from individuals stated as newly unemployed • 2,000 applications to consolidate debts These stats highlight customers who are clearly in very difficult circumstances and in need of support. The return to “business as usual” has been something we have all been striving for, but the reality is that we may be much closer to the start than the finish when it comes to identifying and supporting consumer vulnerability. IS THERE TECHNOLOGY THAT CAN HELP? Absolutely. Many organisations may already have the platforms and process in place to identify customers in potentially vulnerable circumstances and facilitate the required bespoke customer journeys. However, there are now several businesses and offerings that can help create new, or adapt existing processes and platforms to achieve this, such as Aveni, Callminer, Cerebrion and IE Hub. CAN DATA REALLY IDENTIRY VULNERABLE CUSTOMERS? I’m slightly biased and there is no silver bullet, but yes. We can clearly see from our own data instances of consumers who have recently suffered a significant life event such as loss of employment, income reduction, or a bereavement. We can also identify people who are making applications for high-cost short-term credit to cover bills. Data like …

Forewarned is forearmed
The impact of Consumer Duty and why firms should act now

Published 09 February 2022

In May 2021, the Financial Conduct Authority (FCA) published its Consumer Duty Consultation paper, setting out its expectations of firms to provide higher standards of care for their consumers. We commented on this and how long firms had to prepare for changes (CCTA publication July 2021) and we now further explore what firms should be doing, and what we are already seeing in the sector in anticipation of the final policy statement expected later this year. WHAT IS THE CONSUMER DUTY? The Consumer Duty consists of three key elements: 1. The consumer principle will set out a clear tone for firms, and the language used will reflect the overall standards of behaviour the FCA will come to expect moving forwards 2. The ‘cross-cutting rules’ provide guidance on how businesses should be conducting themselves in practice 3. The ‘four outcomes’ is a suite of rules and guidance that set more detailed expectations for firms in relation to key elements in the firm-customer relationship: Communications, Products and Services, Customer Service, Price and Value. PRACTICAL IMPLICATIONS AND WHAT FIRMS SHOULD DO NOW The impact the new rules will have for firms will naturally differ, however, there are actions all firms can take now to ensure they are well prepared for the imminent changes: Project management – firms should consider establishing specific projects to understand the scope and impact of the expected rules on their business model, taking early action where possible. Any implementation projects should reflect statements of responsibilities and should be sufficiently resourced, reflecting its fundamental importance to the firm and its business plan. Customer journey – firms will need to consider the entire product lifecycle and the way that they engage with their clients at each point to ensure customers achieve their agreed outcomes. This will include focusing on initial interactions within the sales journey, such as the accuracy and fairness of financial promotions and other marketing material for products. Here, firms will also need to interrogate customer behaviour more rigorously to understand where behavioural biases may lead to poor outcomes, and how information provision and communication strategies should be re-engineered to help customers achieve their financial objectives. Product governance – firms will wish to carefully consider the ways in which the expectations around value delivery and benefits can be accommodated within existing product governance processes, and where changes are needed. Within this context, it is clear that firms will need to regularly monitor customer behaviour and product performance to satisfy themselves that they are achieving the outcomes required by the new duty. WHAT WE ARE CURRENTLY SEEING We are seeing firms complete scoping and impact assessment exercises and the mobilisation of Consumer Duty project teams. We strongly recommend that firms take a similarly proactive approach, as results from initial deep dives have revealed the need for a greater focus on outcomes testing and general weaknesses in firms’ overall control frameworks. Whilst not under the Consumer Duty banner, we can see that the FCA have already engaged with firms regarding the customer journey, …

What next?
A closer look at Buy-Now Pay-Later

Published 09 February 2022

The payments and financial services sector has changed radically, with shifting consumer and business preferences accelerated by the Covid-19 pandemic. As we move into 2022, I expect to see further innovation and growth, in line with the huge digital shift and prioritisation of personalised consumer experiences that we have seen in 2021. While there is still uncertainty, the payments sector must leverage collective transformation efforts to align with the changing needs of the future customer. Over 2.5 million UK consumers and businesses now use open banking-enabled products, a number expected to grow in 2022. Open banking enables third-party financial service providers to access consumer data from external financial institutions, allowing consumers to seamlessly manage their finances and have more choice over banking services. In response, there has been a boom in new fintech platforms championing innovation and economic growth. SMEs can benefit from this development, connecting directly to financial institutions via APIs, making it easier to accept payments and focus on business growth. As the demand for accessible financial services continues to rise, I predict that over 30 million UK consumers and four million businesses will use open banking by the end of 2022. This year we have seen B2C Buy-Now Pay-Later (BNPL) platforms, such as Klarna and Zilch, grow in popularity. Now providers are looking to expand into the B2B market, solving the issue of a lack of funds for buyers and the sellers by creating a credit line for B2B buyers. When it comes to B2B BNPL, companies that make purchases do so with the intention of positively impacting revenue and growth, reducing the risk of defaulted payments. B2B BNPL allows businesses to make purchases on margin, while the BNPL provider pays the seller in full, taking on the customers’ default risk. I foresee a possible evolution of B2B BNPL models to take advantage of the huge benefits of creating efficiencies within the accounts payable and receivable cycle. B2B BNPL will alleviate the time taken for purchase order and invoice processing, creating efficacy within payments. The future of B2B BNPL innovation will rely on data. Through adopting machine learning, BNPL providers can assess the chances of recovering any overpayments, allowing them to predict problematic businesses. These benefits of data analysis are not just limited to BNPL. According to IDC’s Digitisation of the World study, by 2025, every person in the world will produce a data interaction every eighteen seconds on average. By analysing customers’ data, businesses can identify the consumption habits of existing customers, enabling the personalisation of experiences. Embedded AI tools will be key in achieving this, as their capabilities allow businesses to analyse an incredible amount of customer data quickly. So far, fintechs have been using these technologies for automation and fraud detection but increasingly will help businesses access and understand their data, creating added value. It is difficult to predict how far innovation within the payments sector will go in the next five years. The role of payments is now more than a simple exchange …

CCTA response to BNPL Consultation

Published 19 January 2022

HM Treasury’s consultation on Buy-Now Pay-Later (BNPL) products has recently closed. Here we share the main points from our response. These are key principles we believe HM Treasury needs to consider when shaping the future regulation of consumer credit. • HMT wants a proportionate regulatory regime for BNPL. However, BNPL is often used as a substitute for other credit products. It is important that there is consistent regulation – and consumer protection – for substitutable products. • Many credit products are already offered in a digital online environment. The online nature of a product does not necessitate a different or lighter-touch regulatory approach. Lenders have made digital products work for customers and firms under the current regulatory regime. • If the provisions of the Consumer Credit Act are not fit-for-purpose for one credit product, it is not fit for-purpose for any credit product. • The customer journey for any credit product needs to be structured in a way that ensures consumers have all the information they require, presented in a clear way, and opportunity to exit the process if they decide it is not the right product for them. • Comprehensive reporting of credit usage and repayment is vital – to protect customers and lenders. • Affordability checks must be required for BNPL in the same way as these checks are required for other credit products. No interest does not necessarily mean lower risk. A BNPL loan can be unaffordable, even if no interest is payable.

CCTA response to the Financial Ombudsman Service (FOS) plans and budget for 2022/23

Published 15 December 2021

“For some time, we have been talking about the financial pressure our members are under from the current fee structure of the FOS. We are disappointed by today’s announcement which includes a large rise in the compulsory jurisdiction levy paid by firms. “While we would welcome the freezing of the case fee after the successive rises of recent years, we are concerned about the reduction in the free cases threshold particularly when, all case fees, win or lose, are shouldered by the firm. “The free threshold has been reduced from 25 to just three cases. This will mean that around 20 per cent more firms will now have to pay case fees, which will disproportionately affect smaller businesses. That alone represents a cost of over £16,000 to a firm with 25 cases. “There is little explanation of why the organisation’s cost base will rise by over £40 million for the coming year and is an example of the wider concerns we have had about the financial model of the FOS in recent years. More needs to be done to ensure the Ombudsman delivers value for money”.  

What will the FCA’s ‘Consumer Duty’ mean for access to credit?

Published 24 November 2021

I spoke last week at an event exploring the FCA’s proposed ‘Consumer Duty’. The Duty is positioned as asking firms to put themselves in the shoes of the customer and consider if they would like to be treated how their firm treats customers. We are concerned that it is a much more radical change in the relationship between consumer and lender and that was my warning. The FCA says the purpose of the proposed Duty is to set clearer and higher expectations for firms’ standards of care towards consumers. These are principles that no one can really disagree with-better product design, value for money, improved communication. They are what we should all strive to do, what we want to deliver. But as an industry, we are concerned about the responsibility the Duty will place on firms that are already struggling. With the next consultation paper, which will include the draft rules, due from the FCA before the end of this year, it’s time to think about the possible unintended consequences for consumers. We have already seen a drop in the supply of credit to many customers. Big companies have left the alternative lending market in recent months, but more worryingly – existing lenders will need to consider what the Duty means for their future. They may want to move away from areas of lending that are at the greatest risk of being challenged under the Duty. Not because they are doing anything wrong, but because future interpretation of their current actions are uncertain. History shows that interpretations of FCA principles shift. And a shift in future interpretation may lay lenders open to possible challenge, back-book review, and retrospective compensation. We worry this will mean access to credit and financial inclusion, will drop further as lenders consider these risks. The principles and indeed the regulation haven’t really altered for years across areas like affordability. However, the supervisors or adjudicators’ interpretation has shifted over the years. We know from our work with our members, that there are decisions taken on a daily basis about what should be included in affordability assessments, levels of verification, permissible data types, definitions of sustainability, the use of third-party tools and many other unwritten rules. Now there is an argument that this is what principles-based regulation is all about. Regulation can adapt to new risks and threats without having to be redrafted. However, this brings new risks of policy being created in isolation behind closed doors; not utilising the best version of the arguments and without reference to other policy objectives (e.g. competition). It is also the retrospective application that seems so unfair. Lenders are happy to adapt, to listen to the regulator and to their customers. Then being asked to apply today’s interpretation on lending that dates back a decade brings additional risks. We all want to see greater protection for consumers, but in creating a duty on the lender it marks a radical shift in responsibility. It lands the risk almost completely on the lender …

Time to talk money

Published 10 November 2021

This week is Talk Money Week run by the Money and Pensions Service (MaPS). Set up by government, MaPS exists to ensure every person feels more in control of their finances throughout their lives. Talk Money Week is a campaign designed to increase people’s sense of financial wellbeing by encouraging them to open up about personal finance. People in the UK don’t talk about their money enough. Despite the COVID-19 crisis affecting our finances, 9 in 10 UK adults don’t find it any easier to talk about money, or don’t even discuss it at all. Research shows that people who talk about money: make better and less risky financial decisions have stronger personal relationships help their children form good money habits for life feel less stressed or anxious and more in control. Building money conversations into our everyday lives also helps us build financial confidence and resilience to face income shocks, life events and whatever the future throws at us. MaPS have put together a number of guides to help you start to talk about money here. These cover talking to a partner or your children about money, amongst others. Learn more about Talk Money Week here.

CCTA Response to FOS feedback statement on its consultation on temporary changes to reporting the outcomes of proactively settled complaints

Published 02 November 2021

“Unfortunately, the FOS has missed out on an opportunity to deal with the backlog of complaints it faces”. “At such an early stage, where the decision still rests with the customer, ask the lender to take one more look. The customer can accept an improved offer, with the comfort that if they have any concerns, they can carry on with the FOS investigation. This could have been the simplest of systems”. “However, this new process includes a check on the offer made by the lender, bringing with it delay as the FOS carries out a review. There will be a new administration system as we count these cases. There will also be the application of a £750 case fee each time, no matter what happens”. “From the engagement we have had with members, some lenders are surprised that the FOS seems to have rejected a simpler process. There is less surprise that the FOS are keen to continue charging a full case fee”.

Is the cost of living on the increase?

Published 25 October 2021

We are being told that there is a rise in the ‘cost of living’ but what does this mean? Simply that the necessary costs we all face are going up, but what is driving this rise now? September saw a slight drop in inflation, but economists predict this is likely to only be a temporary dip before the rate continues to rise into next year. A rise in the level of inflation means the costs of goods and services have gone up, and this translates into a struggle for many as they try to manage their family finances, especially if wage growth cannot keep up. We have all read about increases in the price of fuel, food, and other costs in recent weeks. Some of us will also have struggled to fill up at the pumps or find everything we want at the supermarket. These shortages and rising prices will translate into bigger household bills for many as we look towards Christmas. This comes at the same time as many of the Covid-19 support schemes are being withdrawn. The Bank of England (BoE) has said it will have to act soon on rising inflation. This means that an imminent rise in interest rates is likely, with the hope of the reducing the price of goods – but this will mean higher costs for borrowing across many credit products. For CCTA members, the higher costs of living will need to be factored into lending decisions. They will need to think about what this means for affordability assessments. For some, these additional costs will mean that credit is no longer affordable. Undoubtedly, the effect of the pandemic is at play here, along with some of the supply chain issues caused by Brexit. Rishi Sunak will deliver his Autumn budget later this week, where he will try and address some of the pressures on households. We have already seen that the National Living Wage is to rise. The BoE rate setting committee is next due to meet in early November. Only then will we get a truer picture of how this will play out. It remains to be seen if this is simply how we move out of the pandemic and beyond the teething problems of Brexit, or if tougher economic times are here to stay.

CCTA comment on HM Treasury consultation on the regulation of BNPL

Published 21 October 2021

CCTA commenting on HM Treasury consultation on the regulation of BNPL said: “The consultation on BNPL is welcome, but it highlights that the current regulation of consumer credit is complex and unwieldy. These products should already be regulated by the FCA, but the system takes too long to change.” “We support BNPL regulation, including checks on a customer’s ability to repay if they are taking instalment plans. We also need increased visibility of this form of borrowing on credit records. BNPL use is currently invisible and means other lenders are making decisions without seeing the whole picture”. “Consumers using BNPL who fall into financial difficulty should receive the same protection as users of other consumer credit products. They should also be able to use the Financial Ombudsman Service as an independent method of dispute resolution.”

Burning questions
An introduction to the Financial Ombudsman Service

Published 14 October 2021

Who are you? We were set up by Parliament in 2001 under the Financial Services and Markets Act (FSMA) as a free and informal alternative to the courts to resolve complaints between financial businesses and their customers. As well as FSMA, we follow the FCA’s Dispute Resolution (DISP) rules. How are you funded? We are funded by a combination of a levy and case fees. Importantly, financial businesses don’t currently pay a case fee for their first 25 complaints of each financial year. This means that most financial businesses never pay a case fee. We publicly consult on our plans and budget each December and we would welcome your views. I’ve received a complaint. What do I do? DISP describes a complaint as any expression of dissatisfaction. This may seem basic, but it’s important. Once a consumer or their representative presents you with a complaint, you have eight weeks from that point before they can refer it to our service. The rules don’t allow for the eight weeks to be extended, so it’s important that you engage with the complaint from the outset. Final Response Letters (FRLs) are important. Not only is it a chance to resolve the complaint, it’s also the first we’ll see of your argument. If you don’t think the complaint is one we can look at (for example, if you think it is time barred) it is important you are clear about it in your FRL. If you’re not sure how to answer a complaint or how we’ll look at it, you don’t need to wait for it to be referred to our service before you speak to us. As well as online resources that set out our approach in detail, including published decisions, our technical desk is available to answer questions about how we deal with complaints. You can contact our technical desk either by phone on 0207 964 1400 or email at technical.desk@financial-ombudsman.org.uk. How do you approach complaints? The majority of complaints we see in consumer credit (alternative lenders in particular) are about irresponsible lending. Our approach to these complaints is well established and is rooted in longstanding regulatory principles. The four key pillars of our approach to affordability are to ask whether: • proportionate affordability checks were completed before lending • those checks were borrower-focused. It’s not sufficient for lenders to consider only whether they are likely to get their money back • checks have adequately assessed the sustainability of the lending, thinking about the customer’s wider financial situation. Repeat lending is a particular indicator that lending has become or is becoming unsustainable. • firms have appropriately monitored how customers are repaying debt and whether they stepped in where there are signs of financial difficulty. These pillars are based on longstanding regulatory principles going back at least ten years and examples of good industry practice which go back further still. We set out on our website which specific rules within the OFT’s Irresponsible Lending Guidance and the FCA’s CONC handbook set out these …