Improving the consumer experience

Speech by Christopher Woolard, Director of Policy, Risk & Research at the FCA, to the Tax Incentivised Savings Association (TISA) Annual Conference, London. This is the text of the speech as drafted, which may differ from the delivered version.

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The consumer experience is fast becoming the dominant theme for financial services.

It’s a pleasure and privilege to join everyone this afternoon.

‘Improving the Consumer Experience’ as a theme for today’s conference is a good one for two reasons.

First, because it encourages us to look forward.

Second, and perhaps more crucially, the consumer experience is fast becoming the dominant theme for financial services.

The pre-2008 image of Lew Glucksman – head trader at Lehman – famously tearing his own shirt off his back and hurling adding machines around his office is not one the financial industry wants to have, nor should it.

Instead, there is a public expectation – fuelled by big data, transparency, technology, competition and social media – that financial services firms should put their customers at the heart of their business models.

As a sector, both firms and regulators have had to react to this changing context.

From our perspective, we want to ensure we keep a focus on consumer outcomes as we think about regulation.

At the FCA we are developing a new, more judgement-based way of regulating.

And I thought it would be useful to offer some broad reflections this afternoon on how we, as the regulator, are placing the consumer at the centre of what we do.

TISA’s savings and investments policy project

Just before I do – and without pre-empting the discussion later – I wanted to start by welcoming TISA’s Savings and Investments Project and particularly its ambition to develop an approach that has the consumer interest at its heart.

Few would argue that, generally, people need to be better prepared for the future. A future where people are living longer and may ultimately need to fund not just retirement but long-term care as well. TISA has set itself an ambitious programme of work in relation to this – both the objectives and the timescale are challenging but an attempt to tackle this broad policy area should be welcomed.

I know it is early days, but I’d argue that to succeed, the project will have to put the consumer at the heart of the work – including considering what motivates consumer behaviour to borrow and what motivates people to save for the long term.

So it seems to me that involving consumers and consumer groups in the discussions from the start in this project should be an important element in understanding the demand side of the issue, as well as exploring supply-side issues with product providers and distributors who seem well represented.

I should also take a moment to thank TISA for the support it has provided to us in other areas. The FCA (and the FSA before it) has a very good working relationship with TISA and we greatly value your help in developing our thinking about the investment market place.


If we really have consumers at the heart of what we do, that means all of us have a responsibility to understand how competition, or lack of it, affects financial markets.

Turning to the FCA, let me begin with one of the newer parts of our duties, competition.

This is a new mandate for us.

There are two key points about our mandate. First, the Financial Services Act 2012 requires us to ‘promote’ competition. So we’re not talking about reacting to challenges, but anticipating them as much as possible. Being proactive about how we look for issues in markets, address them and foster new entry.

Second, it has a very clear focus – it is about promoting competition in the interests of consumers.  The key issue here is that the FCA wants to see firms directing their energies into competing in the interests of their consumers.

We are also trying to ensure we keep our actions grounded in an understanding of how consumers really behave rather than placing our faith in the wholly rational economic man of the textbooks. So we have been investing in behavioural economics research and trials to help our thinking about how markets really work in practice.

Now, clearly we come to this knowing there are potential competition issues in a number of areas we regulate. But the solutions are not always immediately clear.

Some argue that the lack of competitive edge is all about barriers to entry created by the official sector, some point to information asymmetries, financial literacy, complexity or lack of consumer engagement. Everyone agrees that something needs to be done but there’s lots of disagreement on what and how.

We will take a variety of approaches to get to the heart of issues. In some cases we will make relatively open calls for evidence.

In others our approach will be to define a potential problem – the so-called theory of harm – and see whether there is any evidence of issues in the market. Are there are interventions that could promote competition more effectively and support good consumer outcomes?

So in the case of the £1 trillion UK cash savings market – we took a relatively simple proposition: consumer inertia in the market leads to low switching rates which, in turn, reduces competitive pressure on banks and others to offer the best deal to existing customers.

And we then launched our market study – in this case exploring the hypothesis that one effect of that inertia may be that banks with a large back book of customers can advertise better headline rates (so called teaser rates) than any new entrant could afford to offer for a sustained period – weakening competitive pressure.

If we really have consumers at the heart of what we do, that means all of us have a responsibility to understand how competition, or lack of it, affects financial markets.

In areas like retail banking, why do significant numbers of people leave cash savings in accounts that earn 0.1pc interest - when they could benefit from far more attractive rates or investments that, compounded over time, would generate significant financial benefits?

FCA’s consumer strategy

Sitting alongside this competition work, the FCA has a broader consumer strategy designed to give us greater insight into the needs of consumers, the risks they face and the kinds of outcomes that could be good from the financial services market.

So, for example, we now have much greater contact with consumer organisations to discuss issues or risks that are crystallising in financial markets.

The aim is to make it as easy as possible for consumer organisations – and businesses too – to work with us so we can, in turn, make the most of our relationships: building trust and encouraging a productive, open conversation.

A good example has been the FCA review into continuous payment authorities (or CPAs) where we have been working closely with Citizens Advice. The key issue here is that while CPAs are similar to direct debits and standing orders, they have some distinct differences.

So, on the one hand they do not offer the same guarantee as direct debits – while on the other, they give the company taking payment much more flexibility about when, and how much, it takes from accounts. No doubt one of the reasons they’re popular with payday lenders.

And even accepting the fact that you or I have the right to cancel these payments directly with our banks or card providers – there has been a question mark here over how this operates in practice.

In fact, Citizens Advice has shown us several cases of high street banks and mutuals failing to process requests to cancel CPAs.

Hence our review into the use of CPAs, and the subsequent commitment from banks and mutuals to meet the requirements, review every individual complaint received, and pay redress where payments had continued to be made, in circumstances where the customer is cancelling the arrangement.

Market research and intelligence function

Closely linked to this consumer strategy – in as much as it improves our ability to identify and respond to risks early – is the emergence of the new FCA market research and intelligence function.

Here we want to generate new primary research insights, as well as using secondary research resources, to support broader policy development in three key ways.

First, by building up our understanding of consumer and firm behaviour, attitudes and situations. So generating a more sophisticated appreciation of the world around us.

Second, by helping us evaluate the effectiveness of FCA tools and interactions. In other words, gauging whether the regulatory response is effective enough in any given market.

And third, giving us the ability to analyse and monitor sector size, as well as firm segmentation, so we can measure consumer exposure to risk.

As we move things forward, this improved research function will give us increasingly better understanding of consumers and earlier insights into emerging risks.

Segmentation model

Part of that research programme is the segmentation work we are doing.

The clear rationale here is that to look after people properly, you need to understand them and their needs – so, be able to answer questions like: what financial products different groups of consumers are most likely to buy or use? What lifestyle factors might put them at risk from scams, or impact on their understanding of products?

To get these answers, we have examined an extensive range of consumers’ different personal characteristics, lifestyles, attitudes, behaviours and experiences and created a consumer segmentation model, based on their financial needs and vulnerability to risk.

By breaking the UK population into ten differentiated segments, we will be able to better reach these groups through communications and research. And, rather than taking a ‘one size fits all’ approach, we can use it to target the policy, enforcement or supervisory interventions we make to result in better outcomes for consumers.

While rollout of this tool is in its infancy, we have already used it to identify how each segment is affected by financial crime. So, we used the data our criminal intelligence team collects about share fraud, landbanking and other financial crimes to examine who the victims of financial crime are and why they may fall victim to certain activities.

This involved mapping some 11,000 cases against a segmentation model – in the process unearthing two particular segments of consumers who are vulnerable to this type of crime. One group being three times more likely to be victims than the average.

Having this information at our fingertips gives the FCA the ability to make far more sophisticated interventions, and build better prevention methods. And because this model also offers valuable insight into the communication methods each segment prefers, we not only know who we need to communicate to – but also the most effective way to reach them.

Access and vulnerability

Finally, a word on access and vulnerability.

When we talk about consumer vulnerability, it is clearly important to recognise it as something that affects very large numbers of people – more than most realise – and cuts across all members of society.

Vulnerability, in the sense we understand it, can be both a long-term or a temporary problem for people. Unemployment, looking after an elderly parent or relative, bereavement or the breakdown of a relationship are just a handful of things that can temporarily push consumers into vulnerable circumstances over the short term.

Longer term issues include the likes of financial literacy, health and ageing society. Something like 11m people in the UK suffer long-term illness, impairment or disability.

I suspect what I’m about to say is completely self-evident to everyone in the room, but, we are interested because:

  • certain financial services products can be considered  ‘essential’; without which it is difficult to have a decent quality of life
  • financial services present consumers with more complex decisions when choosing a product or using a service than for most day-to-day industries
  • many products involve contractual terms with extended commitments which mean poor decisions can have a lasting detrimental impact on the consumer
  • decisions can often be about life-changing sums of money and key pieces of welfare

Let me share a couple of real-world examples we have seen. The first was a woman who was diagnosed with cancer and had to give up work for six months to undergo treatment.  

Quite reasonably and sensibly, she contacted her bank to request a payment holiday on her mortgage, or a temporary conversion to interest only.

She was told she would not be eligible for this sort of help until she had missed payments or, alternatively, could submit a new mortgage application that, clearly, she would not be able to get given her circumstances.  

The second is, a man who had Lasting Power of Attorney (LPA) over his father’s affairs and had visited his bank to make a small withdrawal from his father’s savings account to buy some items for his father.  

The request was declined because branch staff told him his LPA needed to be registered in person at the branch by him and his father. Despite his protests, given the ill-health of his father, he was told (inaccurately as it happens) that this was bank policy.

Put simply, we expect firms to treat customers fairly when they are dealing with people with vulnerable circumstances.  In the case of the cancer sufferer, good practice might have been to offer her a payment holiday for the period she would be off work. Regarding the LPA, effective training for front-line staff would have almost certainly avoided the situation.

It is because of cases like this that the FCA, in conjunction with consumer groups, firms and the trade bodies, is starting work to encourage a more consistent and best practice approach towards vulnerable consumers in the financial services market.

Ultimately, we want to see all financial services firms create and put into practice appropriate strategies to address the needs of consumers in vulnerable circumstances.


As a final word, I just like to underline we believe consumer confidence – of all consumers – in the products and services they buy is vital in financial services.

I am sure we would all like to see financial products, particularly essential retail ones, that are transparent and fully understood by consumers.

The issue is, when product choice is complex and terms and conditions lack transparency, consumers often become apathetic about financial services and limited in their ability to compare products.

Financial education is certainly something that can help in this arena and the Money Advice Service is certainly taking steps to improve financial capability in the UK. The National Curriculum also now includes financial education for the first time and should help us move things forward.

However, increasing financial capability takes a great deal of time and, in and of itself, will not fix the complexity problem; it can only ever be a complimentary solution.

In March this year, the Sergeant Review of Simple Financial Products was published and, at its heart, was a premise that when consumers arrive at the financial services marketplace, there should be simple processes and products available that will allow them to make a straightforward purchasing decision.

While our rules don’t specifically require firms to develop simple products, we recognise that simplicity can help to build consumer trust and engagement, and encourage product comparison and shopping around.

What remains to be seen, however, is whether the foundations built in the Sergeant Review are transformed into tangible changes for consumers. It is something that requires the ongoing commitment of all participants, particularly industry.

Finally, we must not rule out, of course, the possibility that the solution to this problem is simply one of a cultural shift. Too many times we hear of consumers caught out by clauses hidden in terms and conditions or of products sold that don’t meet their needs. That culture of terms and conditions designed solely for the firm has to change.


So, there is a big agenda here for consumers.

We are striving to put a better understanding of consumers at the heart of how we regulate.

We want firms to put consumers at the heart of their business models.

And if we can achieve that goal, then we may just have markets that deliver consistently good outcomes for the consumers in them. And we believe they will be markets in which consumers and the firms that serve them can thrive.

Thank you.