Consumer vulnerability: risk or opportunity?

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The latest CMA report lays bare the new challenges that financial organisations face.

From holidays to healthcare, mobiles to mortgages, few industries can escape the increasingly bright spotlight of media and regulator attention on their treatment of the most vulnerable in society. So, with the publication of the Competition and Markets Authority’s (CMA) research on consumer vulnerability, it’s a good time to see what impact this report might have in effecting genuine change within the financial services sector.

Based on extensive research, the CMA divided vulnerability into two broad but distinct categories:

  • Market specific vulnerability: The character, value or risk profile of the product is so complex that a wide range of consumers may be affected.
  • Vulnerability associated with personal characteristics: Physical disability, mental health issues, age or low income can leave individuals at high and persistent risk.

It’s complicated, but finding a new model is possible

One of the most significant conclusions is that vulnerability is not always consistent in nature, especially when it comes to mental health. Finding ways to accommodate this fluctuating risk profile is a particularly thorny issue.

A second area is the ‘loyalty charge’ where consumers remain in long term contracts simply because it’s hard to change or there’s a lack of price transparency. The CMA estimates the resultant loss to consumers at £4 billion per year.

What the CMA makes clear is that identifying and understanding the unique characteristics and needs of different consumers is key if organisations are to address these challenges effectively.

In my opinion, the report is a good start, but it could go further. What’s missing is an acknowledgment of how the effective analysis of data can enable the implementation of tailored, inclusive experiences across the entire customer spectrum. It’s not just about categorisation, it’s about hyper-personalisation – making much more intelligent use of existing data to identify and profile customers’ needs to develop new services and support mechanisms based on that insight.

Say goodbye to self-identification

Of course, it’s not quite that simple, but there is a wealth of excellent guidance and advice (e.g. Money Advice Trust) that would enable front-line staff to more sensitively and discretely assess those at risk: something previously reliant almost entirely on self-disclosure with inevitably patchy results.

Back up this more subtle approach with the insight available from proper analysis of data and we can see how it can become much easier to pick out vulnerabilities and put in place strategies to mitigate them.

Continuous and consistent care and service

It makes sense to engage continually with customers as this will tend to increase loyalty and lead to greater retention. Again, this means using data to enable predictive action, taking steps to address changing circumstances throughout a product’s lifecycle. Just as the energy sector is required to inform customers when they would be better served by a different tariff, banks could adopt a similar approach. For example, switching a lending customer to a more suitable product with a correspondingly lower risk of default.

Applying the same data-driven, continuous engagement methods across the entire customer base offers the potential for a much more personalised service based on trust, whilst reducing financial and regulatory risk. And it’s needed. Financial tech innovators such as Monzo and Starling are breaking ground by building online services shaped around the new digital economy and the demands of the modern consumer. They’ve already staked a claim to the ‘friendly face of banking’ and established organisations need to up their game to compete.

Change that opens up the sector to greater scrutiny, such as that imposed on energy suppliers by the Digital Economy Act where data sharing enables organisations to co-operate for the benefit of the consumer, will also benefit pro-active organisations. It’s about using regulation as a catalyst to re-examine how customer data is used, building a detailed understanding of each individual and using it to design better services.

A win-win situation is possible

The recent FCA consultation on high cost credit, along with the release of the 2019 Business Plan, highlighted just how at risk the banks are if the regulations change and the inertia deadlock is broken, given how much of their revenue is derived from charges and interest levied on customers – many of whom are vulnerable. Voluntary change enables financial organisations to proactively manage rather than simply wait for action to be enforced on them (which must surely be inevitable anyway) along with the monetary and reputational damage that will entail.

I believe the way to get on the front foot to address this industry-wide challenge is through a combination of hyper-personalisation through data and sensible policy setting. This would present a “win-win” for banks, as well as leading to knock-on benefits towards an ultimate goal of a more inclusive society for all.



Adam Williams

Senior Consultant

Capgemini Invent – Risk and Regulation Powered by Data.