• Howard Taylor, Regulatory Delivery Lead at Capco
  • Published: 28 November 2019

Howard is the co-author of UK Finance’s 2018 report ‘Financial Inclusion In A Digital Age’, and an ICAEW Foundation and CABA Inspiration Award winner

The path forward in addressing the needs of vulnerable customers must be evolutionary, not revolutionary. Announced over the summer and now in its second stage, the Financial Conduct Authority’s consultation on vulnerability is a welcome development. However, it should be viewed as just a first step along what could prove a rocky path.

The Financial Conduct Authority (FCA) consultation on vulnerable customers should be welcomed by industry and consumer groups alike. Rather than focus just on the theoretical or the moral imperative, it looks to address the practical challenges for firms and potentially vulnerable customers, and the FCA has been listening.

The financial services industry has already devoted considerable time and energy to addressing vulnerability, but firms have for some time wanted clearer and more robust guidance when it comes to addressing vulnerable customers’ needs. The FCA has been listening, and through a combination of core principles, case studies and practical guidelines this consultation brings previously disparate elements together.

While the consultation shows the regulator is determined to trigger long-needed change across a range of key areas, the consultation must be viewed as just the beginning of efforts to address this most sensitive of topics. It a laudable step forward, but no sea change, and there are a number of gaps that the FCA could usefully address in the coming months.

Technology – the missing link

For me, the most obvious omission relates to technology. The simple truth is that technology is fundamentally reshaping the world we live in, and the way vulnerable customers engage with technology in banking - and more widely in society – must accordingly be a key focus.

True, the consultation is first and foremost an effort to gather together existing guidance in one place for the first time, and work is still ongoing via the regulatory sandbox to understand fully the impact of technology on vulnerable customers. That said, the FCA could have been a little braver in explicitly calling out technology as a known gap.

There are two very different schools of thoughts here. One is that technology is detrimental to vulnerable customers, and financial exclusion more generally, because it leads to further exclusion, with cost, access and usability typically cited as obstacles.

I prefer to take a more positive view, and remain convinced that - used in the right way - technology can be a powerful force for good, offering greater access to those who would otherwise be excluded. I would not be writing this article, or have a career in financial services, if it were not for technology. Looking back to my school days, my inability to write by hand meant that technology was crucial in allowing me to receive an education. The advent of contactless card readers, eliminating the need to input a PIN number for payments below £30, is a recent and familiar example of how technology can remove physical barriers.

Technology is no silver bullet, of course. Certainly, in a mass market context, it has proved very successful in delivering products and services more cheaply and to enhance communication and interaction. Yet the technology that can help vulnerable individuals to engage with mainstream systems and processes remains more expensive. Moreover, that technology needs to be tailored for individual users to address their specific circumstances.

Accountability begins at the top

Technology aside, the future role of senior management could be clearer. A focus on vulnerability has to come from the top. Some firms already have a head of Vulnerable Customers or a Head of Inclusion; some maintain a dedicated VC team, while some split oversight responsibilities across the bank. There is no uniform approach, nor does the FCA mandate one. My recommendation is that a Head of Vulnerable Customers should be a mandatory board-level appointment, to embed the necessary focus and commitment at the very heart of organisations’ strategy and decision-making.

Conversely, the consultation places too great an emphasis on frontline staff as the central mechanism for dealing with vulnerable customers. This is unrealistic, not least because banks are moving rapidly towards staff-less interactions, whether via apps and online banking or within branches themselves (to be fair, this trend is a consequence of a shift in customers’ preferred modes of engagement with banking services).

Introducing a system that requires all staff to demonstrate a ‘correct’ level of empathy or engagement will inevitably pose a challenge. There is a very real risk that staff trying to help customers could end up (mis)judging a situation without fully understanding all the facts, and in a worse-case scenario excluding a customer from a particular service.

Any definition of vulnerability must take in many different circumstances and needs. At one level I resent being labelled as vulnerable because, as a financial services professional, I have a better understanding than most of financial products. Yet my physical constraints also make me a textbook example of a vulnerable customer. My own challenge relates to interacting with the system at a physical level. For others that scenario will be reversed. The inclusion in the paper of product design is a most welcome one, as it is will be the key to solving many ingrained problems – but that lack of easy categorization is a complicating factor when it comes to identifying and implementing clear-cut solutions.

It could also be clearer that the FCA considers all vulnerable customers to be ‘in scope’, even those who have not yet bought a product but who may one day do so. That is important and commendable as it means that someone browsing for a product online or in branch, for instance, should be treated the same as a paying customer. That has clear cost and resource implications for banks at a point where banking is not regarded as having a universal service obligation unlike some utilities.

A vital first step

The FCA deserve immense credit for raising vulnerable customers up the agenda and forcing all of us to address the unspoken issues of our society. But while better understanding and education around personal finance are central to addressing vulnerability, individuals often take a particular course of action out of sheer necessity. Poor financial management or indebtedness may not arise purely from a failure to understand the available options, or as a result of poor judgement. It may simply be because an individual’s circumstances leave only one course of action open to them, however unpalatable.

Anyone who has been vulnerable knows that reality that you are forced to decide to pay for something against your better judgement - often at an eye-watering cost. Choice is too often a luxury. That is a challenge that transcends financial services and the remit of any regulator and instead asks some hard, and likely unwelcome, questions of society as a whole.