In July 2022, the FCA published its long-awaited policy statement and guidance on the Consumer Duty. As we wrote in our previous blog on the Consumer Duty, in a clear break from past regulation, it requires firms to put rigorous evidence on consumer behaviour at the heart of what they do. Firms will have to think carefully about what a customer should expect from products and services and ensure they are meeting that expectation – factoring in a deep understanding of how consumers actually behave. In this blog post, we explore what firms should expect from the Consumer Duty, what firms need to do to ensure they are driving good outcomes for consumers and three ways the Behavioural Insights Team can help.
At its core, the Consumer Duty offers an excellent opportunity for firms to strengthen not just their services and products, but also the thing that’s most important to their business – their relationship with their customers. Doing so will require investment in the short term – but there is increasing evidence that businesses driven by purpose are more commercially successful too.
For the first time, all aspects of the consumer’s experience will be subject to appropriate levels of consideration by firms, from the design and launch of new products, through to existing ones. A wider focus on the customer’s best interests will also make it more likely that regulation can occur in a less reactive fashion.
What the Consumer Duty means for financial services firms
The Consumer Duty requires firms “to act to deliver good outcomes for retail customers”. The main principles behind the Duty are fairness, suitability of products, services and customer service. This includes that customers are equipped with the right information to make effective, timely and properly informed decisions about their products and services.
Specifically, the duty will require firms to:
- End rip-off charges and fees
- Make it as easy to switch or cancel products as it is to sign up in the first place
- Provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- Provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions
- Provide products and services that are right for their customers
- Focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction
Crucially, the FCA’s guidance specifically says firms must understand and take account of how behavioural biases can impact consumer needs and decision-making. Firms will need to undertake randomised controlled trials (the gold standard for rigorous evidence), surveys and in-depth qualitative research to demonstrate how they are doing this.
How the Behavioural Insights Team can support firms to meet the Consumer Duty and put consumers at the heart of their business
To comply with the Consumer Duty, many firms will need to redesign and test aspects of their products and services and bolster their customer service. The Behavioural Insights Team is uniquely placed to support firms with this due to our long track record of making products and services more user-friendly, using rigorous methods. The rationale for the Consumer Duty is the culmination of years of research by academics, the FCA, ourselves at the Behavioural Insights Team, and others, on how behavioural biases influence consumer decisions. For example, how small frictions disproportionately discourage specific actions, how choice architecture sways decision-making and how consumers are influenced by perceived and actual social norms.
Examples of where BIT can support firms to meet the Consumer Duty requirements:
Requirement: Making it as easy to switch or cancel products as it was to take them out in the first place
Frictions that appear small – an extra click, having to call customer services, or take time to absorb new information – have a disproportionate impact on how likely it is that a consumer will take a specific action. Subtle, often unintended design features can make it harder for consumers to cancel or switch products than intended.
Behavioural Audits analyse the customer journey from beginning to end, identify key frictions and sludges, and can be used to recommend options for designs to make the experience easier for customers. These options can be taken forward and tested with users in simulated environments (using our online experimentation platform, Predictiv) or in the real world. Armed with a better understanding of pressure points, and informed by the research on behavioural science, these tools can help firms to redesign customer journeys or develop changes to their products and services to meet the Consumer Duty. For example, our recent Behavioural Audit of gambling websites revealed that closing an account takes much longer than opening one.
Requirement: Providing helpful and accessible customer support
Friction also occurs when customers are trying to access customer support. Customers often have to wait too long to access support and when they do they can receive unclear guidance at the wrong time in the customer journey. This can have a disproportionate impact on the customer’s actions. For example, in our work on pensions guidance, we found that a simple change to a customer call handler’s script with a ‘stronger nudge’ to book an appointment achieved 4.5 times as many customers booking a guidance appointment than the business-as-usual control.
Quantitative data analysis enables an understanding of where the drop-off in the customer support journey is happening, and therefore where the problem may lie. This can be complemented with observations of customer service interactions and in-depth interviews to gain a deeper understanding of the customer experience and develop recommendations for how it can be improved. These options can also be quantitatively tested to understand their impact on customer outcomes, so that firms know which solutions to scale up across the business and to increase firms’ confidence that they are meeting the requirements of the Consumer Duty.
Requirement: Providing timely and clear information that people can understand about products and services so consumers can make good financial decisions
The way that options are presented and the way information is framed can have a surprisingly big impact on consumers’ financial decisions. We also know from our research that typically, most consumers don’t read or understand Terms & Conditions, but when we redesigned Terms & Conditions web pages that highlighted key information, this increased the amount of information absorbed by consumers by 21%. Similarly, we know that a credit card slider repayment interface – which shows how much a customer would pay back over time with different monthly repayment amounts – can make a big difference to how much people would pay back each month compared to a simple number input.
Online Experiments – we are experts at running comprehension, behavioural and sentiment outcome tests on existing communications and processes with customers via our in-house policy testing lab, Predictiv. We do this using an online sample of people with similar characteristics as the target audience. We then draw on a wealth of evidence on what works to make this information clearer, more timely and actionable, and test the hypothetical impact of these solutions via delivering bespoke Randomised Controlled Trials (also called A/B tests).
For example, we could run an experiment to test different designs of customer-facing informational materials to understand their relative impact on customer comprehension and likely follow-on actions (such as whether they would take up the product or service). This would provide firms with the robust evidence they need on what works in a sandbox environment, before making actual changes to websites, apps and existing processes, minimising the likelihood of unintended consequences and backfire effects.
If you are thinking about what the Consumer Duty means for you and are interested in any of the tools above – behavioural audits, qualitative and quantitative research, solution design, online experiments, or training, we would love to hear from you. Please contact ellie.lugt@bi.team.
