In March 2019 Oxera ran a workshop at UK Finance on consumer outcomes and product design: insights from behavioural economics.

Why behavioural economics?

The Financial Conduct Authority (FCA)'s outcomes-focused approach to supervision uses a toolkit that includes behavioural economics, business model analysis and finance.

Questions we have seen include:

• Have your customer communications been tested? Do they help your customers make well-informed decisions? And do they stop biases from being triggered?
• Do your products offer value for money and how do you test this?
• How do Board members know whether customers are treated fairly and consumer outcomes are fair? Do you use a framework? An MI dashboard?

To answer these questions, firms can use this toolkit.

What practical steps can we take?

1. Identify the biases driving your customers? behaviour: This will help mitigate conduct risks in the design of products, communications and advice.
2. Review and test your customer communications: This will reveal where biases are being triggered and whether these can lead to poor outcomes. It is often in communication and engagement where things go wrong. Examples include some FCA enforcement cases and Financial Ombudsman Service (FOS) decisions.
3. Undertake business model analysis: Having segmented your customer base - for example, according to customer behaviour and product usage, this analysis will highlight the range of consumer outcomes and where profits are generated, and also what type of consumer and consumer behaviour the business model may be relying on. This is the first step in assessing the sustainability of the business model and fairness of consumer outcomes. 
4. Develop a framework for assessing fairness: Fairness is a subjective matter. Enabling sensible discussion by the Board requires a clear framework where the outcomes can be reviewed from both business and consumer perspectives using the right metrics. These perspectives may be conflicting but are worth calling out as trade-offs are inevitable. 
5. Define what each product is for: It is important to be clear internally and externally about the purpose of a product. Understanding how consumers will use your product helps to inform the outcomes you expect to see. Get your product, marketing and other teams around the same table; inconsistencies between them can lead to discrepancies in how your product is designed and marketed, which can result in poor consumer outcomes.
6. Keep your MI dashboard up to date: Boards need the latest figures to be able to monitor consumer outcomes. Develop metrics that capture the distribution of outcomes, rather than just the average, across your customer base and over time.

Focusing on consumer outcomes, as well as the detailed rules, makes compliance and conduct risk management leaner and more efficient.  Designing products that give your customers what they need and perform well, in the long term, can give firms a competitive advantage.

Lastly, these practical steps don't need to be scary. Build success by achieving the quick wins and embedding this toolkit within your teams.

Oxera's next Consumer outcomes and product design: insights from behavioural economics workshop, held at UK Finance, will take place on 21 June 2019 between 9am-5pm. Full details can be found here.