How to use The FCA's new Consumer Duty to drive profitable growthby
The FCA's new Consumer Duty will lead to "a major shift in financial services" and how they should provide consumers with finance products. In the last of three posts on the topic, Graham Hill explains how the review process can be used by financial services brands to drive profitable growth.
This is the final of three posts on how retail finance firms should respond to the FCA’s new Consumer Duty.
The Financial Conduct Authority (FCA) has published a new Consumer Duty setting out the standard of care retail finance firms must provide consumers. Firms need to create additional value from complying with its complicated requirements.
In a nutshell…
In the first and second posts in this series, I described three approaches that retail finance firms have to respond to the FCAs new Consumer Duty and the seven steps necessary to carry out the Review option.
Reviewing the firm’s products, processes and problem solving will almost certainly cost it a seven-figure sum, particularly when you consider the cost of any remediation, improvements and new developments identified.
Some firms will accept this ‘compliance cost’ as a cost of doing business in the paternalistically regulated world we live in today. But what if there was a way to use the Review to build a foundation for a more profitable business model, rather than just seeing it as unavoidable cost?
Fortunately there is.
Back in the 1990s, the Marketing Science Institute ran a research programme to understand 'market-orientation' and its effects on business performance.
The programme found that a market-orientation consisted of three things: a focus on customers and their needs, a focus on competitors and their actions, and a focus on internal capabilities that create value in the market (through meeting customers' needs more effectively than competitors do). This is the 3Cs model.
Companies who adopt a market-orientation deliver significantly higher business performance than companies who adopt another orientation, e.g. the customer-orientation we hear so much about today.
Why is this relevant? Simple, because five of the seven steps in the review are closely aligned with the 3Cs:
Customers are covered by the review of the adequacy of products for their target markets' needs and by the review of customer feedback across channels.
Competitors are covered by selectively benchmarking current product features, conditions, fees and charges against the leading market products.
And capabilities are covered by the review of the clarity, informativeness and appropriateness of communications, and the review of customer complaint handling processes.
Together, the seven steps in the Review provide a process to comply with the FCA’s new Consumer Duty, but perhaps more importantly, they also provide a foundation on which to build a better, more profitable, more competitive business model, based on a market-orientation.
Three key takeaways…
- You are going to have to spend a lot of money on the Review come what may. Do so on the understanding that it is in investment in building a foundation for a more profitably business model.
- Organise and carry out the Review steps so that they maximise the information collected, information that you need to design a more profitable, market-oriented business model.
- Look for early opportunities during the Review to improve your customer and competitor understanding and improve your go-to-market capabilities. Use these to make remediation, improvements and new developments that provide a healthy return on the cost of compliance.
Other articles in this series:
Graham Hill has been a Management Consultant, Interim and Director for over 30 blue-chip companies, in 15 different countries, over the past 30 years. Most of his work has involved building complex service systems, directing their implementation and managing the resulting organisational transformation. He is an acknowledged SME in customer...
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I've absorbed these series with great interest Graham; thank you for sharing them. Financial services will need to work closely with the FCA IMO if they are to avoid a bumpy ride ahead.
I am pleased you found the series useful.
If you want further detail of how to carry put the steps in the review - the purpose of each step, the key activities and the deliverables -please download the white paper 'FCA New Consumer Duty - Options, Steps, Activities and Developing a Market Orientation' from https://www.optimapartners.co.uk/journal/fca-new-consumer-duty.
I think you are right about retail finance firms needing to develop a different type of collaborative relationship with the FCA.
The FCA's new Consumer Duty is built on a foundation of 'outcome-based regulation' whereby it is looking for firms to demonstrate that they are achieving outcomes notionally desired by customers. This is very different from the principles-based regulation used in the UK in the past, and in particular, the rules-based regulation typically used in the USA.
As you suggest outcome-based regulation will require both a closer relationship with customers, after all, it is ultimately their outcomes that drive the regulation, and with the FCA to develop, prototype and test new consumer-oriented products.
I shall cover this new approach to regulation and its implications in an additional post.
Best regards, Graham
If you want to delve into the steps of the Review in more detail - to look at each step's purpose, the key activities and the deliverables - download the white paper on the 'FCA New Consumer Duty: Options, Steps, Activities and Developing a Market Orientation' at https://bit.ly/OP_FCA3