Since its publication by the FCA, I have supported a variety of payments service firms to help them comply with the standards set out by the new Consumer Duty regime.
It is fascinating, and almost unsurprising, that the range of business models of firms operating in the payments sector has led to diverse challenges when considering, implementing, and ultimately complying with the new rules. Despite this, an important point of convergence between many of these firms relates to embedding the cultural shift introduced by the new regime.
Getting your voice heard
Culture is a fundamental driver of Consumer Duty compliance. I've found that it's not always easy to articulate at the board and senior manager level the importance of allocating more time and resource to meet the new standards. Winning the hearts and minds of the board requires a fundamental shift of mindset. It's about helping them see beyond the bread and butter of regulatory compliance and the risks of enforcement action or reputational damage.
Customer centric products vs. Customer centric mindset
I have no doubt that the payments sector has been highly impacted by the fintech revolution and maintaining a customer-obsessed approach upon the launch of new products is a matter of market survival. In other words, it is hard to remove customer centrism from the domestic payment’s ecosystem, as this is a key part of their DNA.
Why does this not automatically translate into compliance by design and default? I believe we need to differentiate between creating customer centric products and having a customer centric mindset that ensures consistently positive consumer outcomes across the full product lifecycle, careful consideration of all relevant touchpoints and whether any of those may cause repeated harm.
One important area closely monitored by the UK regulators is the level of friction in the payment process. Technology developments (for example, instant payments) enabled the creation of seamless ways of payment, which is undoubtedly beneficial for consumers. With this addition of the new Consumer Duty, however, it is important to consider what impact the product design features might have on its consumers, especially vulnerable ones, to avoid the risk of harm.
Are you promoting the right behaviour?
Fundamentally, there are important questions firms need to answer to ensure they are promoting the right behaviour expected by the new Consumer Duty:
- Does my firm’s strategy have adequate focus on the customer “outcome”?
- Are my board members and senior managers aware of their responsibilities?
- Does everyone at all levels of the firm understand the impact they have on the outcome of the end customer?
- Do my colleagues feel empowered to raise concerns if they believe the firm is not acting to deliver good customer outcomes? If so, are concerns acted on?
- Do existing policies, processes and frameworks (including those related to people management) enable good customer outcomes? If not, are we making any changes?
Looking forward, I am very keen to understand how the regulatory landscape for UK payments firms will evolve and how they will interact with the Consumer Duty regime. The framework set out by the Payment Services Regulations 2017 and Electronic Money Regulations 2011 means combining a set of relatively prescriptive rules with a fully outcome-based regime.
This may change, however. One possible future direction was shared by HM Treasury in its January 2023 Review and Call for Evidence of the Payments Service Regulations. The document suggests that matters such as payment authentication may be shifted to an outcome-based regime, especially if that means being able to maintain flexibility to innovate while addressing the increasingly complex and diverse needs of end-users, as well as responding to evolving threats.
The New Consumer Duty brochure published alongside this blog contains a variety of payments-specific considerations and case studies that illustrate the direct impact of the regime on authorised payment institutions and electronic money firms. Although they may vary depending on each firm’s business model, they aim to help firms ask important questions and make relevant considerations. But it is undisputed that as long as the culture element is implemented firm-wide, Consumer Duty compliance is simply part of payments firms’ DNA.
Download The New Consumer Duty brochure below: