Andrew Stevens, Banking and Financial Services Principal at Quadient
Over the past few months, consumers have been hit with increasing financial pressures. The cost of living crisis, intensified by further recent hikes in inflation rates, has left many consumers in financial hardship.
Banks and financial services organisations must adjust their strategies to ensure they are meeting customer needs as this financial landscape evolves. If they fail to do so, not only will banks fail in their duty of care, but customers will ultimately vote with their feet. Impending regulations, such as the Consumer Duty, is also placing greater focus on consumer protection. This regulation means banks now have a legal as well as societal obligation to help customers cope with their finances. Banks must place greater focus on their communications, and ensure customers are provided with a service that will assist them through these difficult times.
Anticipating customer needs with proactive support
Many high street banks offer support to consumers who come to them when they are financially struggling. However, this reactive support doesn’t do enough for consumers who are already financially vulnerable or may not feel comfortable asking for help. Reactive support also does little to help those customers who don’t know that they are in trouble until it’s too late. To assist customers with their finances and provide advice before it’s too late, banks must shift their mindset away from reactive to proactive support.
Offering proactive support means seeking out customers likely to be suffering economic hardship and offering support and advice in advance. For instance, banks could evaluate a customer’s bank statements and notify them in advance if there are any upcoming changes that could affect their income – such as tax increases, or reductions to government support schemes. The ending of the Energy Bill Support Scheme in March, for instance, could have been a great opportunity for banks to proactively notify and help customers with the rising energy costs. If banks proactively inform customers of scheduled changes like this, customers will have more time to prepare their finances.
It is important for banks to provide this proactive support in a way that is personalised to each customer. Banks must consider the financial status of each customer and offer advice through preferred methods, whether that be via email, letters, or through online banking applications. If banks fail to communicate in the customer’s preferred method, it risks important information being left unopened or even ignored.
The effect of upcoming regulation
If banks cannot prove that they are supporting customers, then they will lose business and fall foul of regulations. For example, the Consumer Duty deadline for banks to ensure they are offering the best possible outcomes to their consumers is 31st July. To comply with this regulation, banks must prove they are acting in good faith towards their customers, supporting them as they pursue their financial objectives. With this deadline swiftly approaching, banks are under increasing pressure to ensure they are truly customer-centric. This means offering comprehensive options to struggling customers – including offering more flexible overdrafts or lowering interest rates to minimise the financial burden that comes with customers borrowing from their banking provider.
The Consumer Duty also requires banks to ensure customers understand what they are offering. This means that banks must communicate in a way that equips customers to make timely, effective, and properly informed decisions. In fact, our research reveals that only 8% of consumers actually understand information on new overdraft charges. This must change if banks are to meet impending regulations. Communication confusion of this type could open up banks to a wave of Consumer Duty complaints, risking losing customers or even facing regulatory action.
Meeting duty of care through segmenting customer bases
As consumers continue to struggle with rising rent and mortgage rates, alongside still financially recovering from the impact of high energy bills, many are experiencing financial difficulties. In fact, 49% of adults confirmed they were behind on energy bills between September and January 2023, reporting high levels of anxiety as a result. Rising bills have had a significant impact on consumer’s financial health. Banks should carefully consider how best to deliver this news sensitively to not add to existing stress.
One way banks can ensure news is delivered sensitively is though personalised communication and segmentation of their customer base. By dividing customers into groups based on internal data, banks can identify the varying levels of advice and support individuals need. For instance, university graduates might be worried about student loan repayments. In this way, banks can offer personalised offerings to meet consumers’ needs, reducing stress where possible. To provide a level of customer care that will maintain loyalty, banks need to consider their customer’s concerns first. By doing so, banks can help their customers to understand how and why their finances are fluctuating during these uncertain times.
A great example of this is Nationwide, which has recently focused on segmenting their customer base to assist customers during the cost-of-living crisis. They have doubled down on the importance of duty of care by offering £340 million to be paid directly into eligible customers’ accounts.
Unlocking financial stability during a critical time
Customers must be at the heart of a bank’s business strategy to combat shrinking profit margins and bank switching. To achieve this customer-centric approach, financial services should focus on offering proactive support, delivered in a sensitive manner, whilst making better use of customer data to help customers cope with their individual issues.
Banks who offer this support will benefit from a loyal and trusting customer base and attract new customers who are looking for this level of assistance. If they fail to do so, they will risk their reputation and push customers to competing financial providers. And with the Consumer Duty deadline approaching, it is vital banks act fast and focus on the customer, or risk regulatory action.
