By Tanveer Qureshee, Financial Services Solutions Lead at Zone
In July 2023, the Financial Conduct Authority’s Consumer Duty rules will come into force, which will set higher and clearer standards of consumer protection across financial services, requiring firms to put their customers’ needs first.
The term positive friction has been widely used as part of the conversation on Consumer Duty to safeguard customers from harm and protect the most vulnerable. A common misconception is that any type of friction is bad and that great customer experience is frictionless. It’s important to remember that efficiency does not necessarily equal effectiveness and that a great customer experience should offer the best outcomes for a user through a personalised journey. In the case of financial services, customers expect security to take precedence over simplicity, particularly in high-risk scenarios.
Understanding the difference between positive friction and sludge
Positive friction is the introduction of small obstacles that allow users to slow down and encourage thinking, which in turn supports better decision-making. It can enhance a user’s experience by providing them with decision points and improving their understanding so that they feel fully in control of the choices they are making.
These can be present across digital and physical channels and include measures like providing helpful prompts while asking for information that might be misrepresented during insurance policy applications; assets like videos or text that help improve the understanding of risks associated with an investment; checkboxes or manual input fields that ask a user to confirm their understanding of fees when they are signing up for new products & services; and asking for confirmation of payee during money transfer transactions, aimed at preventing scams as well as genuine mistakes
FCA’s Consumer Duty guidance has cautioned businesses against using ‘sludge’ design practices, which is the other side of friction. This could include barriers like digital interfaces that make certain actions more difficult by obscuring important information or requiring many additional clicks; long and unnecessary in-person waiting times in branches and excessive paperwork, often in physical forms.
In the right places, friction can protect customers from harm and improve their experience, but unreasonable barriers can act against the principles laid out by The Duty and cause customers to rethink their relationship with firms.
Acing positive friction
Zone’s Consumer Duty Report highlights how tailored relationships with customers are the driving force for exceptional experiences. Businesses must rethink relationships and firms that neglect to listen will find themselves quickly left behind. But what does listening mean in an industry used to noise?
From our research, we see this challenge centring around three distinct pillars – trust, engagement and knowledge. These components are essential for creating the outcome-based model that Consumer Duty asks for, providing a framework for firms to act in good faith, support customer objectives and avoid foreseeable harm, as well as creating strong relationships. Positive friction brings these elements together via:
Knowledge improvement, focusing specifically on customer understanding, empowering customers to take ownership and responsibility for the products and services they engage with and equipping them with all the information that allows them to make good decisions.
Engagement helps to shift the dial from inaction to action, making customers active participants in their financial objectives. This enables them to take positive actions equipped with the right information.
Trust is essential, but our research shows that mistrust is still prevalent in customers’ relationships with financial firms. This allows businesses to position themselves as an entity that has the best interests of consumers at heart – a trusted partner.
How will this benefit financial institutions and their customers?
With FCA guidance coming into play this summer, financial institutions must be prepared to make the necessary adjustments to comply. Understanding how positive friction can be implemented into company best practices will ultimately provide the best possible outcomes for them and their customers. Acing it by understanding the three key pillars will allow financial institutions to build the necessary trust, create stronger relationships with customers and protect them against harm.
