Will the new consumer tax regulations upset the fintech apple cart?

The new Consumer Duty rules could be a great opportunity for financial startups, writes QED’s Yusuf Ozdalga.

Image source: Pexels/RP Photography

The consumer duty (also called the “Duty”) is a new and far-reaching framework proposed by the Financial Conduct Authority (“FCA”) and is due to come into force in July 2023.

The duty sets the standard of care firms should provide to customers in the retail financial markets, and will thus affect both fintechs and legacy financial institutions.

Unsurprisingly, much has been written about The Duty, and the risks it poses to regulated firms in the UK. But if fintechs act carefully, they can turn this change into a big opportunity.

The way to do that lies in having the right intention, the right implementation, all underpinned by the right information. We also refer to this as the “3-in” framework. Let’s look at each one in turn.

The right intention is the starting point for how a regulated company approaches its customers and its value proposition.

While many companies pay lip service to putting the customer first, Plikten will now shed light on actual results and outcomes. Therefore, we expect that there will be a divide between the firms that truly deliver superior customer value and those that merely say the right things but fail to deliver on that promise.

In theory, this is an area where innovative fintechs should have a strong edge.

The starting point for many entrepreneurs is to make the world better for their customers, and fintechs tend to be manic when it comes to measuring Net Promoter Scores.

A high NPS score is of course no guarantee that the duty will be delivered, but it is certainly a step in the right direction.

Therefore, our advice to fintechs and any other regulated firm in the context of having the right intention is simple. Make sure you put great customer outcomes at the center of your vision, mission and culture, and make sure everything you say goes beyond mere words and translates into action.

This brings us to the second “i”, implementation, which has particular relevance in three of the four performance areas highlighted by the FCA, which are governance, price and value, and consumer support.

Proper implementation is all about being on top of the details.

For example, a bank may have the right intention for its customers.

But if someone calls their helpline to transfer money to their checking account to avoid going into overdraft, but ends up having to wait an hour, gives up, and the account goes into overdraft and incurs a fee as a result, This is an example of implementation gone wrong. Especially in consumer support.

Our advice to fintechs in the implementation context is therefore to have a culture that not only has the right intention, but also the right level of empowerment at all levels of the organization.

It is critical that all employees, whether they are a customer service representative or a mid-level manager, are empowered to take the necessary actions and implement the changes needed to deliver great customer outcomes.

For example, a customer service representative may notice that the loan value of the customer’s home loan has decreased, which qualifies them for a better rate – in which case they should immediately be authorized to switch the customer to the more advantageous rate.

Even better, these types of changes should be implemented automatically.

To implement this kind of change, the organization must also have access to the right kind of data, which brings us to the third and final “i” information.

Any company to succeed in the twenty-first century must have access to and be able to digest and act on information at scale.

Needless to say, fintechs should have a big advantage in this arena.

The right information at the right time should underpin everything a dynamic company does and should especially support the fourth result area which is consumer understanding.

By constantly tracking the right information, the firm will be able to understand exactly how the intent of good consumer outcomes is being implemented and turned into products and services.

Therefore, our advice in this arena should not come as a surprise. Build an organization that has the ability to consume information and act on it with the right intent.

Implied in this statement is that the company has recruited and incentivized people with the right set of skills.

In other words, people who are able to mine the data, analyze it to turn it into information and insights and turn those insights into products and services via an empowered set of employees who can act quickly.

Today’s fintechs have all the right ingredients to make the new Consumer Duty framework a big opportunity, and the key to doing so lies in being able to leverage their core strengths of being intentional, nimble and data-driven.