The FCA chief executive, Nikhil Rathi, sees Consumer Duty as transformational for the retail financial services industry. It appears that this view is not shared across the sector.
It’s the business equivalent of a TV whodunnit with a very simple narrative.
The stranger is creeping up the stairs and the householder is reading a novel in bed and pointedly ignoring the sound of their burglar alarm. It’s not going to end well.
What brought this to mind? The first trigger was a comment from an EY partner at a recent event attended by senior executives from retail financial services firms. He explained that 80% of the firms he has spoken with are likely to adopt a “minimal compliance” approach to Consumer Duty. The 20% who treat it as an opportunity to outmanoeuvre their competitors are those who will gain maximum commercial advantage.
The second trigger was the FCA multi-firm Consumer Duty review published on Wednesday. This indicated that a number of firms were well-behind in their implementation planning. The report cited evidence of firms taking a “superficial” approach and others failing to allocate sufficient budget and resources. In a few extreme cases, there had been little engagement at board level and some firms had even approved plans without any board discussion.
In an industry where every customer segment is fought over fiercely and a few percentage points gain or loss in customer retention can increase, or reduce, profits by millions this is mystifying.
Let’s be crystal clear.
Being customer-centric is not a strategic decision; it’s an imperative. A truly customer-centric business focuses on understanding and listening to customers and has an operating model designed to maximise the value of that mindset and culture. The smartest leaders understand the significant advantage this gives them over competitors who don’t operate this way.
There is substantial evidence to back this up. Here are a few examples:
• McKinsey’s research found that 70% of buying experiences are based on how a customer feels they are being treated.
• CEI research found that 86% of buyers will pay more for a better customer experience.
• RightNow’s CX Impact Report stated that 89% of consumers stopped doing business with a company after experiencing poor customer service.
And if nothing else seals the deal, then decades-old research by Bain & Co, working across a base of thousands of customers, showed that a modest increase (5%) in customer retention levels resulted in a disproportionately high uplift in profit and value (between 20% and 125%).
Aside from common sense, the numbers dictate that a customer-centric strategy approach is the best route to increasing customer trust, loyalty and retention. Therein lies your future success.
Adopting a “minimal compliance” strategy for Consumer Duty makes no sense at all. It’s even stranger when you consider the impact of COVID. Businesses with strong customer relationships were better able to weather the economic storms. Those with highly effective operations, and particularly those who had embraced technology, accelerated faster when market conditions improved and were able to distance themselves from others who were struggling to adapt.
If COVID taught business anything, it showed them that they could not afford to take customers for granted or make assumptions about what those customers expected of them. More vital to their success, the leading firms realised during COVID that their customers’ expectations had changed, hugely. Customers, forced to adapt by the pandemic, were doing things differently. Firms that don’t know what their customers’ new expectations are will fall behind.
A well-known private bank had, pre-COVID, used traditional means for understanding their customers, deploying tools like CSAT and NPS. As the pandemic progressed, they realised these methods were not working; they simply were not getting the insight they needed. As soon as they switched their approach and focused on understanding their high net worth clients’ new expectations everything changed. The clients provided clear and unambiguous feedback on their current expectations. They were also more than willing to score the bank’s performance against those expectations and this revealed precisely where the bank needed to improve. As a result, the bank is now investing heavily in these critical areas to steal a march over their competitors and protect their valuable client base.
This expectations-based approach enables them to go beyond the requirements of Consumer Duty and that is their goal: to gain maximum advantage.
Those firms who take advantage of the opportunity offered by Consumer Duty to acknowledge, better understand, develop and strengthen their relationships with customers are those who will prosper. It may require an overhaul of both their operations and their mindset, but it will be worth it.
If they don’t approach it positively, there are many risks ahead; FCA investigations and fines, the departure of customers, lower profitability and a widening competitive gap, to name a few.
Those who take a lead will send out powerful messages that will reap rewards.
They will demonstrate to their customers that they are important and valued.
They will demonstrate to employees (and potential employees) that they are a good place to work.
They will show the FCA they’re serious.
The alarm is ringing loudly to get your attention. Don’t ignore it.