In announcing the new set of Consumer Duty regulations in the UK coming into force from July 2023, the Financial Conduct Authority (FCA) has set higher and clearer standards of consumer protection across financial services. They were, however, keen to emphasise that consumers were not absolved of all responsibility for their own actions as a result. Customers should be able to make rational and informed decisions but their circumstances and the obfuscation of facts by intermediaries and providers frustrate good outcomes. Firms often know very little about their customers, have a narrow product lens, or cannot tap the information that they do have.
‘Financial services firms continue to be built primarily around products rather than customers.’
The Queen’s Speech* 2022 included a reference to Smart Data as part of the new Data Reform Bill, aiming to increase industry participation in the Smart Data scheme, which will give both citizens and small businesses more control of their data. Open or Smart Data is a key element of the concept of Open Living – a world where privacy and personalisation are balanced and consumers reap the benefits of leveraging their data to drive better deals, across multiple service sectors. The Bill is aligned with growing the economy to address the cost of living through better access to credit, increased competition between incumbents and supporting new market entrants, and better management of household and company bills.
The move to Open Living through Smart Data and the implications for compliance with the new Consumer Duty, have still to be recognised by firms, their advisers, and even regulators. Comprehensive and cohesive data strategies with supportive information architectures are still not widely tested by analysts, shareholders, and non-executive directors. Whether this is due to ignorance, technophobia, or disbelief is a moot point, it does defer the realisation of Open Living and Consumer Duty benefits to both consumers and firms.
The ‘white out’ effect of Big Data has given way to much more interactive, personalised, and supportive Open Finance tools like Moneyhub.
‘... consent-based data lakes, co-created with customer outcomes at the forefront and powered by Open Banking and Open Finance data, are now in reach.’
Very few executives that we meet fail to be impressed by what Moneyhub has built, but some do doubt whether consumers would share data. A good point, if, the propositions offered are not relevant, useful, or personal. As a McKinsey study recently discovered:
‘Asking customers general questions about data sharing doesn’t reveal a true account of their willingness to use open banking. [In a survey] conducted with 3,000 UK consumers and SMEs, we found customer sentiment to be highly positive… willingness to share data doubled when they found a particular feature or service appealing’.
When Open Banking was introduced in the UK, there was no public awareness campaign highlighting the benefits. That hasn’t stopped a rise in the use of Open Banking (over 5.5 million at last count), nor in the numbers using Open Finance apps. Consumers will typically share their data if the value exchange is compelling, but this could be different according to the situation:
Convenience has value – We have seen in loan and mortgage applications that clients will provide one-time data digitally rather than submit copies of paper forms to be scanned or submitted by post. The customer’s job is clear – to get a loan approved as quickly and easily as possible.
Cost saving has value – Not only getting money off current expenditure but also stopping unnecessary spending. This could be by offering shopping rewards, highlighting potentially unwanted subscriptions, or nudging towards shopping around regularly. The value of the data should incentivise providers to offer tangible rewards – with the proviso that the consumer should never lose out as a result.
Oversight has value – The nudges that can improve customer outcomes include bringing everything together and highlighting performance on investments; spotting gaps in protection cover; ISA (Individual Savings Account) headroom or noting when tax or loan to value levels have been crossed. This can also include spotting changing circumstances, potential scams, and unusual cash transactions – nudging the user, trusted adviser, or family member.
Action has value – The ability to execute an action, overcoming natural inertia and time-poor users’ forgetfulness, means that good intentions become good outcomes. This could be by sweeping money to savings, paying off debt, heading off charges, or triggering a workflow to top up or transfer.
There is no hiding from the inevitable trend toward Smart Data and Open Finance. The business, consumer, and societal benefits are irresistible. As three elements combine – supply side adoption through enlightened self-interest, consumer demand driven by the realisation of value from personal data, and legislative pressure to bring the first two elements together – the market and the regulator is telling firms how to react.
To avoid being closed out of customer relationships that had been taken for granted by competitors with more appeal and better data insights, firms need to act. As implementation plans are required for Consumer Duty by the end of October 2022, those that include Open Finance will have a distinct advantage and Moneyhub has the technology, tools, and expertise to help you embrace the opportunity Consumer Duty offers.
* In the UK The Queen's Speech is the speech that the Queen reads out in the Lords Chamber on the occasion of the State Opening of Parliament. It sets out the programme of legislation that the Government intend to pursue in the forthcoming parliamentary session.
This article has first been published in the Open Banking and Open Finance Report 2022. Click here to download the report.
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.
With over 17,825 global connections in 37 countries, Moneyhub is a data, intelligence, and payments company that develops ISO 27001 certified software for Open Banking, Open Finance, and Open Data applications. Its FCA-regulated Open Data platform enables companies to quickly and easily transform data into personalised digital experiences and initiate payments. Organisations, spanning finance to telecoms and retail, rely on Moneyhub’s award-winning technology.
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