Consumer Duty needs Smart Data

Open Finance solutions have an important part to play in significantly reducing the cost of complying with the FCA’s proposed Consumer Duty regulations. In addition, it opens new opportunities for firms to use consent-based consumer data to identify and develop new hyper personalised products based on needs and behaviours. With ongoing engagement, it provides a means of identifying early warnings of issues and the ability to act to limit detriment using an evidence base. The list of behavioural insights provided would be significantly enhanced by the adoption and facilitation of Open Finance powered tools. 

FCA’s Consumer Duty Consultation (CP21/36) makes a powerful case for the adoption of Open Finance as a key component of a regulated, customer-facing firm. In fact, it is difficult to imagine any new product provider or intermediary setting up without Open Finance data at the heart of its operating model.

While access to consumer consent driven data has much improved in recent years, learnings from Open Banking show large incumbent providers must be compelled to make this easier and more secure for consumers by implementing open APIs that will enable their customers to improve their financial outcomes through access to their own data. We believe that Customer Duty should leverage the existing GDPR requirement for financial institutions to make customer data readily available through the adoption of Open Data standards. Providers across sectors – life and pensions, wealth management and general insurance – have the ability to provide secure and easy access to customer records. If product and pricing data were consistently available via API it would further enable data aggregators to analyse value and encourage consumers to consider their options.  

The availability of data also brings benefits to providers. These include lower customer acquisition costs through data analytics; lower onboarding costs with automated and comprehensive fact finds; data-based suitability and capacity for loss checks and ongoing checks for changes in circumstances and progression towards intended financial outcomes. Increased revenue, lower costs and a compliance dividend.

As an Open Finance platform, we have seen increasing demand for us to integrate third-party propositions (from green energy to data vaults and ESG analysis to protection propositions). The idea is to use Account Information Service Provider (AISP) insights to ensure that nudges are directed to consumers for whom the proposition is relevant and useful. For example, we can detect that someone renting a property does not seem to have any contents insurance cover.  Equally, we can help to suppress inappropriate offers, including affordability checks. Our role is to improve personalisation and relevance as we have no direct interest in the outcome e.g., product commission or asset accumulation.

We are also very supportive of the proposal to enable consumers to be able to compare prices and assess value for money. AISPs have an important part to play in enabling consumers and, indeed, advisers to see their entire financial affairs in a single view; to compare prices; assess fair value between existing providers and to explore alternatives in the market.

Examples of these Open Finance benefits include:

• More accurate, comprehensive and lower cost fact finding processes
• More efficient digital onboarding processes including KYC checks
• Gap analysis and both initial and ongoing suitability checks including changes in capacity for loss
• Highly personalised customer experiences, supporting customer communication and retention
• Improved decision-making by providing a holistic picture, for example, small pension pots may be considered for trivial commutation but when viewed in aggregate (and, potentially, consolidated) the importance and value for retirement planning is more obvious
• Leveraging data for better outcomes including using rent recognition to improve credit scores and enabling access to mortgages and other loan products
• Lower cost and frictionless payment mechanisms including automated sweeps to savings and investment products, pensions or protection or loan repayments etc.

As consumers are better informed; access better value and more suitable products as a result, we are integral to delivering a compliance dividend and satisfying TCF and Consumer Duty tests.

It is our contention that consent-based Open Finance is the vehicle that financial institutions and intermediaries must adopt if they are to meet their business objectives and demonstrate their adherence (by design) to the Consumer Duty structure. The value exchange between the consumer and the supplier lies in the sharing and use of data to understand and respond to the context and financial objectives of the consumer. Firms that fail to offer an Open Finance option to consumers will fail to provide a holistic, well-informed and monitored service and we urge the FCA to support the calls for firms to publish APIs to the benefit of customers, intermediaries and healthy market competition.  

About Vaughan Jenkins

Vaughan has worked as a Senior Manager in the financial services sector and as a CEO and Partner in management consultancy firms. He has written and lectured on fintech and financial wellbeing and was an Advisory Board member for the UK Financial Capability strategy.

About Moneyhub

Moneyhub is an Open Banking and Open Finance data, intelligence and payments platform. Our APIs and white label solutions help businesses drive customer engagement through hyper-personalised experiences, which enhances financial wellness by putting the power of data back into the hands of those who own it: the consumer.

For more information about Moneyhub, check our online company database.