Back in February 2021, the UK’s Financial Conduct Authority (FCA) published its final guidance to clarify how it expects financial services firms to treat vulnerable customers.
Providers have therefore had two-and-a-half years to ensure they have processes and systems in place to help those who might be deemed as financially vulnerable.
Digital banking perhaps provides the clearest example of the progress that has been made. For example, most give features that help users keep track of their income and expenses and provide easy-to-use financial management tools.
However, while we are used to such functionality with online banking, how can digital functionality help vulnerable customers when it comes to their mortgages and car finance agreements?
What is financial vulnerability?
In its final guidance, the FCA states that some 27.7 million adults in the UK show characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience, or low capability. It also outlines that although not all people with these characteristics will suffer harm, they may limit people’s ability to make reasonable decisions or put them at greater risk of financial mis-selling.
The guidance goes on to say that firms should understand what harm their customers are likely to be vulnerable to and ensure that customers in such circumstances receive the same fair treatment and outcomes as other customers. This needs to happen throughout the whole customer journey from product design to customer engagement and communications.
Mortgages and financial vulnerability
We are all aware of the major issues being caused by fluctuating interest rates combined with a rapidly escalating cost-of-living crisis recently.
Against such a backdrop is a worrying statistic from Experian which states that 17 percent of people would struggle if their monthly mortgage or rent increased by less than £50. Although this piece of research is a few years old now, it serves as a useful, albeit painful, reminder that even minor fluctuations in expenditure can have serious implications for families, some of whom are paying many hundreds more in repayments every month because of changing interest rates.
In today’s ESG-focused world and against guidelines including Treating Customers Fairly (TCF) and the FCA’s guidance, mortgage providers need to show they are doing all that is possible to stop their customers from falling into this trap. Technology can provide some perfect solutions for this. A sophisticated, interactive customer interface can provide useful tools such as pop-up chatbots or pre-populated data fields to ensure customers are getting quick decisions on the right products that will prevent vulnerability, because of the data population being more accurate and thorough.
Furthermore, AI technologies could be used throughout customer modelling and affordability assessments to identify patterns and changes in financial behaviour that suggest a person may be experiencing, or at risk of, financial difficulties.
Motor Finance and financial vulnerability
Digital methods can be a game-changer for how essential information regarding motor finance agreements is presented to customers.
This can then be taken to the next level with online systems providing a much more streamlined process to enable regulatory functionality. They allow the customer more time to review the agreement details, often in the comfort of their own home, allowing them to carefully weigh up all implications of entering into the agreement, proving that the stringent Treating Customers Fairly (TCF) guidelines have been met. This is especially important when it comes to dealing with vulnerable customers. All evidence can be given to regulatory authorities if needed, certainly far easier than if an agreement has been verbally explained in a noisy showroom.
When it comes to the customer, the key thing is that a good online offering can provide the tools to service their agreements and give them ownership over their financial affairs. It gives them choices, and it provides them with the information they need at their fingertips to make an informed decision, in much the same way they take for granted when it comes to taking out a new savings account, loan, or insurance policy.
With the FCA stating that over 27 million people in the UK show some form of financial vulnerability, it is essential for financial services providers to do all they can to help address this.
While online banking arguably leads the way, digital channels can be designed with vulnerability in mind and applied to the mortgage and motor finance sectors. This will benefit the customer and the provider alike and will provide the regulator with important proof that all requirements have been adhered to throughout the entire process, from viewing the agreement to formally agreeing to it.