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Complaints, trust and selling in newly regulated markets

The financial services industry is bracing itself for the Financial Conduct Authority’s half-yearly update of customer complaints against firms in early April. The FCA is driving cultural change in the sector and applying greater rigour to city institutions than its predecessor. As a result, financial services companies must change to avoid future ‘mis-selling’ investigations and consequent fines.

It is not just FCA scrutiny that is encouraging fundamental changes in the way business is conducted. Regulators are widening their focus and more rules are being introduced to ensure fair play. The Competition Commission is conducting strenuous market investigations into payday lending and the £11 billion private motor insurance market.  

Financial institutions need to stay on top of these regulatory developments and ensure they meet all new and existing requirements. In order to do this they must invest in their core staff and training to ensure a good level of knowledge and compliance throughout the business. 

There is also a need to redefine the old business model. FCA Chief Executive Martin Wheatley has said “conduct” and “culture” are his two key priorities for 2014. Being client-focused will become integral to compliance, as the FCA has indicated over the last year that it is interested in investigating customer experience, incentive structures, regulatory responses, governance and decision-making.

A key cultural shift will be around the design of new products, together with how they are presented and sold. Consumer outcomes will have to be prioritised, rather than solely concentrating on profits. But we cannot forget banks exist to make money for their shareholders and therefore banks need to reconcile selling ethical products with running a profitable business. For financial services there are already good templates in existence. For example, HSBC subsidiary First Direct was last year voted the best organisation for customer service in financial products by readers of Which? magazine.

The introduction of new consumer protection such as seven-day account switching from last October means consumers won’t just vote in reader surveys, but with their feet, if they feel they are not getting a good deal. Aware of this, banks are trying to woo customers with a variety of offers and preferential rates.

Stiffer competition will also come from emerging banks: TSB, Williams and Glynn, Tesco, Sainsbury and Virgin Money. The Post Office has also entered the market by rolling out current accounts at various branches. Before these new entrants even start, they have a competitive edge as their brands have not been tainted by PPI mis-selling.  Free from the burdens of costly fines and legacy systems they may also offer cheaper deals, lower charges, greater mobility with banking apps and other digital services.

When mis-selling came under the microscope, product suitability was also found wanting, as products lacked the outcome or returns the customer thought they had signed up for. Taking a lead from the telecoms industry will help banking. Telcos saw competition drive innovation in a far more fiercely competitive market than the banks have yet encountered. Designing customer-centric products and paying close attention to improving customer service meant telcos continued to make profits despite the recession. If banks take these elements to heart then they could also help ensure compliance with the increased demands of regulators.

Most banks have also seen headcount reductions and branch closures since 2008 and may now lack the resources to compete effectively in this new marketplace. They may not have experienced in house customer complaints professionals, expert selling teams at their core with deep knowledge of all products, or the latest technology and methodologies at their fingertips, which can help them truly understand customers’ ever changing demands.

Outsourcers do, and can, utilise holistic customer insight tools such as our bespoke First Customer Intelligence, which helps banks design the right messages and build the right new products.  Effective intelligence can also help banks find cross-selling opportunities, something they haven’t historically been very good at, even though customers have rarely moved banks. Despite having a range of 10 or more products available to them, consumers hold an average of just two financial services products with their main bank, with 65% holding a current account and 50% a savings account according to research from the research from the Direct Marketing Association (DMA).

Outsourcers also have the agility, flexibility and capability to provide financial institutions with resources as and when they are required. Our own 2013 research carried out via a YouGov poll showed that 22% of UK adults are still receiving a few calls a week from firms looking to take up their PPI ‘mis-selling’ case and lodge a claim. Banks may well need to ramp up their claims handlers this year and then ramp down in future years as claims slowly diminish.

Financial services outsourcers not only have expertise in specifics such as claims management, they also understand the regulatory environment and can help to identify areas of non-compliance by conducting detailed past business reviews. Using root cause analysis - a key aspect of complaint handling and customer analytics - outsourcers can pinpoint causes of complaints, coupled with remediation and prevention techniques to also help reduce future claims.

Changes forced upon the City by new competition and regulation can actually provide significant opportunities for financial institutions if they genuinely embrace placing the customer at the heart of their business. Investing in customer intelligence as well as partnering with outsourcers that can help bring expertise from other sectors such as the telco industry may help kick-start a long overdue transformation in financial services.



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