• Helen Lord, CEO at Vulnerability Registration Service


• 01.08.2022 07:00 pm
#security

We are in a cost of living crisis, with UK inflation at a 40-year high, interest rates at a 13-year high, over 50% hike in average gas and electricity prices, and food and fuel prices soaring daily. In fact. The conditions of this current environment have not been experienced since the global financial crisis in 2008. While some research is showing that more than a third of adults in the UK are now struggling financially, the reality is that many more will experience a significant squeeze on their finances for the very first time in their lives. It is by far one of the biggest challenges facing banks and financial services this year.

There are widespread predictions of a forthcoming tsunami of debt as more people find themselves falling into vulnerable circumstances and unable to manage their finances.

The issue of protecting those who are vulnerable, or have fallen into vulnerable circumstances temporarily, from further harm has been high on the FCA’s radar since 2017. The FCA’s expectations have been very clear that the financial services sector must identify and treat its vulnerable customers fairly. And they must be able to demonstrate what steps they have taken to do so. But five years on, our research has shown that two in five vulnerable people still feel unfairly treated by banks and financial services. 

Sadly, many firms have not placed vulnerability as the highest priority or as an immediate emergency. That’s not to say that progress has not been made at all, but that any action taken has been peripheral at best or ‘lip service’ at worst. Ultimately it has not been enough. 

The complex issue of vulnerability and why unfair treatment is still taking place

There are two key issues at play here, and not just in the banking and financial services sector, but among all organisations that provide a service.

We are being told time and time again by banking, financial services, utilities and mobile phone providers, that ‘we know who our vulnerable customers are.’ The reality is that a small number of vulnerable customers will have made these organisations aware of their circumstances. Even then, there is a lack of awareness of the extent to which that person is vulnerable. There will be many, many more who have not revealed their vulnerable circumstances to them, and organisations do not make it easy for people to disclose.

The biggest challenge, however, is knowing what to do with their vulnerable customers once they have been made aware of them. How do they manage them? 

The whole nature of vulnerability makes it an extremely complicated issue. It is not simply about dealing with a percentage of the population that is in debt. It’s a percentage of the population that has a vulnerability, and the vulnerability can occur for many different reasons, all of which need treating in different ways. There isn’t a ‘one size fits all approach to the issue. 

And vulnerable customers must be managed very carefully. If they are managed in the wrong way, it can become an extremely resource-heavy task and negatively impact the vulnerable person. Organisations have to find a balance that provides the right level of support and achieves the right outcomes for their customers, whilst doing it in a streamlined, efficient way.

How they do this will become even more pertinent once the Consumer Duty comes in.

Things are about to change significantly

The new Consumer Duty will place greater pressure to ensure no harm is caused to consumers. It will force more practical action to be taken as the onus will be placed on firms to prove the steps they have taken to identify, assess and engage with their customers at every single stage of the customer relationship. We believe that it will be a game changer for the industry. Addressing parts of the issue will no longer be enough. If it’s not addressed fully, the industry could see itself at the centre of the next ‘PPI’ type scandal. 

A crucial role for fintechs

Fintechs are vital for the industry as they are all about delivery, efficiency, cost-effectiveness and ease. Many fintechs, like the Vulnerability Registration Service (VRS), have come into existence to deliver real results for a specific purpose. Collaboration between such fintechs to address each element of wider industry challenges is the key to enabling larger, more established firms to fulfil their obligations easily and improve experiences for consumers.

And vulnerability is one of those challenges that have to be tackled as a collaboration. There are too many pieces for one organisation to address fully. The understanding and perspective on vulnerability that the VRS enables, for example, has come about from sourcing and collating sensitive data that is extremely difficult to obtain. It has been hard-earned over a number of years and, as such, forms one extremely vital part of the ‘vulnerability jigsaw’. Our partnerships with other fintechs are bringing the other pieces of this jigsaw together.

One organisation cannot address all the elements, but the forthcoming Consumer Duty will expect this to be done. As more fintechs come onto the market offering efficiency-achieving services, collaboration will be the way forward. Collaboration between fintechs could set the tone for the entire financial services industry, enabling organisations to address vulnerability fairly and appropriately from the very start, and at every single stage of engagement.