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The introduction of a new Consumer Duty promises to be one of the biggest shake-ups to retail financial services regulation in over 15 years.
The proposed Consumer Duty will have a particular impact on how firms manage their digital distribution channels – online or via an app.
What is different about digital channels?
• New, more detailed real-time data on customers
• The choice architecture of digital channels—the way in which choices and options are framed—is highly influential in affecting decisions
• The ability to quickly test (and then improve) different variants of online/app choice architecture
• The need to train fewer customer-facing staff (although well-trained staff are still required for webchat, etc.).
These lead to new opportunities to build in the right conduct risk controls. There has never before been so much data on how customers interact with a sales process, and it has never been so easy to trial different versions of choice architecture and observe the impact of customer decisions.
What are the practical ‘no regrets’ actions regarding digital channels?
In preparing for the Consumer Duty, firms are gathering the evidence on how customers behave over digital channels, and the customer outcomes enjoyed as a result. This evidence includes:
• Assessing the effect of digital choice architecture on customer behaviour through ‘sludge audits’ and A|B testing. This is relevant for ensuring customer understanding and also customer support.
• Assessing customer outcomes through designing insightful management information, that covers the full distribution of customer outcomes delivered over digital channels. This will focus on where different customer segments or clusters enjoy different outcomes.
The real question for firms is now “how to embed this new evidence in decision-making and governance frameworks?”’
Come along to our forthcoming Preparing for the Consumer Duty workshop with UK Finance on 23 June to find out more.
Tim Hogg, Senior consultant, Oxera