Enterprise

Buy Now Pay Later – fintechs and the customer journey-led transformation opportunity

May 4, 2022 by

In the second of our series (part one is available here), we look at how fintechs can turn risks into opportunities when it comes to consumer-led Buy Now Pay Later regulation.

Consumer-focused regulation will likely disrupt the business model of Buy Now Pay Later fintechs, and give more traditional FS organisations an advantage in this low-friction credit market. BNPL firms have a close relationship with merchants, but sometimes less so with consumers, and therefore gaining robust visibility over consumers’ overall financial well-being will be a challenge, with several questions that the customer needs to consider:

Can I afford to take on more credit?

Do I properly understand the product and implications of purchasing?

What happens if my financial position changes and I cannot make the repayments?

It also presents risks for the BNPL fintechs themselves, especially centred around an increased likelihood of consumers not making repayments and going into arrears:

Negative impact on balance sheet and commercial risk

Increased scrutiny and challenge from the FCA

Reputational impact

What do the original innovators in this market need to do to prevent losing ground to traditional FS organisations?

Developing relationships through customer journey-led design

There is an opportunity for BNPL fintechs to build more effective relationships with their customers directly through true end-to-end customer journey design, and by leveraging best-in-class capabilities including digital contact strategy, behavioural economics, and voice of the customer analytics. This approach can yield multiple benefits, including improved NPS and CSAT results, and significant cost reduction associated with the more streamlined journeys.

Designing journeys from the perspective of the customer will help ensure that BNPL fintechs can mitigate the risks highlighted above, with the following considerations applied to journey design:

Truly factoring in the end-to-end journey, from the moment a customer has decided they want to purchase a product, all the way to what will happen if they cannot afford a repayment.

Engaging risk and compliance teams in the design process to ensure any opportunity to optimise journeys in-line with FCA requirements (or preferences) are taken.
Delivering messaging around education and affordability early in the digital journey. There are innovative techniques available to support here, from the use of behavioural economics to present critical information in a clear and accessible manner, to the use of analytics to identify potentially the financially vulnerable – where customers can be diverted to voice or other channels if vulnerability needs assessed. This approach introduces friction at the appropriate time and in a way that protects customers, whilst this also highlights an opportunity to outsource elements of the process and relieve pressure on internal teams.

The time to focus on this is now, as the traditional FS organisations are already pushing into the market, and only the BNPL fintechs who evolve and transform will be in a position to counter.

This customer-centric approach also presents the opportunity to challenge some of the negative publicity that is circulating regarding BNPL, for example the Claro Money ‘Bye Now Pay Later’ campaign that was launched in December 2021 with eye catching billboards in London, aimed at alerting consumers to the risks of unconsidered spending and over reliance on unsecured financial products such as BNPL.

Ultimately, Buy Now Pay Later is the payment method of the moment, with huge growth potential, appealing to retailers and consumers at the same time. However, the model’s sustainability in terms of revenue, risk management and customer debt needs consideration. The signs are encouraging, but the unsolved challenges remain important, even for established financial operators. One thing is certain – deferred payment is more relevant than ever, and BNPL can no longer be ignored.

Dafydd Hobbs is the Client Partner for Financial Services at Gobeyond Partners.

Buy Now Pay Later – preparing for a regulated market

April 5, 2022 by

In this, the first of two articles, Faye Sadler-Clark, Director of Risk & Compliance, and Michelle Sharples, Head of Digital Risk & Compliance Solutions, examine how Fintech organisations are preparing for newly introduced regulations surrounding Buy Now Pay Later.

Buy Now Pay Later is a financial product that allows consumers to purchase goods on credit and typically pay for them through regular, interest-free instalments for up to 30 days after purchase, or 6-week to 4-month instalments. This is a common payment method with online retailers, and is becoming increasingly popular at high street shops, and indeed around the world (Global statistics and facts)

Buy Now Pay Later (BNPL) is the fastest growing payment method in the UK, with nearly 4 in 10 Britons saying they have used a BNPL service, and its use is growing at rate of 39% per year. With nearly 10m Britons saying they have avoided retailers who don’t offer BNPL, there is a pull from consumers, and therefore pressure on retailers, to provide this as a payment method. The original innovators, such as Klarna, Clearpay and Laybuy, have seen their market share increase. If we look at Klarna as an example, their market share in the UK (5%) is above that of the US (2%), but less than Germany (20%) and Australia (11%). We are now starting to see regulated FS organisations launch BNPL products (Revolut) or substitute products (VISA).

The typical process for accessing BNPL for customers has few barriers, and is seen at the lowest friction approach to obtaining short-term credit.

This frictionless credit journey does not present itself to consumers without risks. A recent survey revealed that 24% of BNPL customers spent more than they planned because BNPL was available at the checkout, whilst they can access multiple BNPL offers from various fintechs, rendering credit limits with individual fintechs meaningless. The risk to consumers of finding themselves in a position of financial difficulty, especially those consumers who are vulnerable, is real and present.

The Woolard review and likely regulatory impact

Buy Now Pay Later is not currently directly regulated, relying on an exemption under the Financial Services and Markets Act 2000. However, as a result of the Woolard Review, recent work by the FCA, and pressure from various consumer groups, BNPL will be brought under the FCA regulatory perimeter. For BNPL firms this means they will have to:

Undertake affordability checks

Implement effective redress mechanisms, and consumers will have a right to complain to the Financial Ombudsman Service (FOS)
Evidence operationally robust processing, sustainable financing and have a wind down plan in place

Various new processes such as affordability tracking will be needed, all requiring full employee training to help ensure compliance with new requirements. Whilst the exact regulatory details have yet to be confirmed, the FCA’s guide to other areas of consumer credit can be a useful indicator of what to expect, and there are some key things BNPL fintechs will be thinking about in advance:

Whilst fintechs such as Klarna already undertake “soft” credit checks, it will become their responsibility to ensure that these affordability assessments are as accurate and robust as possible.
Fintechs will need to put in place robust measures to monitor affordability on an ongoing basis for repeat customers. The FCA have previously highlighted poor re-lending practices in other areas of consumer credit, criticising organisations that rely on historical information or prepopulated application forms, so it’s unlikely that these practices will be allowed.

Part of assessing affordability means identifying and assessing the needs of vulnerable customers. The FCA expects that, once-flagged, these customers experience a more appropriate, tailored customer journey that supports their needs. BNPL fintechs will therefore need to ensure they have suitable processes in place to identify and cater for vulnerable customers.
Importantly, BNPL fintechs will need to be extremely transparent in their affordability assessments, maintaining detailed records. These will be vital in the event of any customer complaints to the FOS to mitigate the risk of damaging redress claims.
The admin and cost burden of this regulation may lead to increased opt-out. In a recently published paper, 68% of e-commerce startups say they would stop offering BNPL solutions, putting them (and BNPL providers) at a commercial disadvantage in favour of those major retailers who can afford to absorb the cost.

The new regulations and processes are coming, whether BNPL firms are prepared for them or not. But it’s not enough for these firms to simply ask themselves how they can be prepared in time. For BNPL firms to stand out from the competition, they need to ask the question, “What opportunities do these regulations bring?”

We’ll examine these opportunities in detail, in part two.

Dafydd Hobbs is the Client Partner for Financial Services at Gobeyond Partners.

Michelle Sharples

April 5, 2022 by

Getting to grips with the Financial Conduct Authority’s new Consumer Duty

February 3, 2022 by

The Financial Conduct Authority’s (FCA) proposed Consumer Duty continues to be of major interest within the retail financial sector. With the publication of the latest Consultation Paper (21/36) in December 2021, Faye Sadler-Clark, Webhelp’s Director of Risk and Compliance, takes an in-depth look at the Consumer Duty and shares her view on the actions firms can take now to be prepared.

What is the Consumer Duty really about?

The FCA have been considering whether to apply an overarching standard of care to authorised firms above and beyond existing Treating Customers Fairly (TCF) principles for many years, resulting in an ongoing consultation around a new Consumer Duty.

The concept of an overarching duty of care came back on the agenda in 2020 in light of the FCA’s focus on customer outcomes, and is front and centre as one of the FCA’s consumer priorities within their 2021/2022 plan. Firms selling or involved in the manufacture or supply of regulated products to retail clients will be subject to the new rules, and have been waiting to understand the final position for some time. The third and final consultation is now open (at time of writing, Feb 2022), and expectations set that the final rules on the new Consumer Duty will come into force in July 2022, with a deadline for compliance of April 2023.

In terms of FCA expectations, the Consumer Duty will require firms to ‘deliver good outcomes for retail customers’ and to compete ‘vigorously in the interests of customers’, in line with the FCA’s desire to make sure customers are better protected.

A ‘unique regulatory intervention’

The FCA’s latest Financial Lives Survey, conducted in February 2020, found that only 42% of adults had confidence in the UK financial services industry (up from 38% in 2017) and that people with characteristics of vulnerability and the over-indebted were more likely than average to lack confidence in the industry.

Along with increasing confidence in retail financial services markets, the FCA have been clear in their publication of CP 21/36 their intention to ’bring about a fairer, more consumer focused and level playing field’ and to ensure firms are:

‘consistently placing customers’ interests at the heart of their business’ and

competing to attract and retain customers based on high standards of customer satisfaction, and innovative pursuit of good consumer outcomes’.

Whilst the potential benefits for consumers are difficult to refute, firms and consultation respondents have, to date, challenged the FCA on the Consumer Duty proposals, with many suggesting the FCA should simply enforce existing regulations and TCF principles more effectively. Despite this, the FCA have held firm that the Consumer Duty sets significantly higher standards than that required under existing rules. The FCA’s goal is significant and ambitious – to ‘fundamentally shift the mind set of firms’ in order to provide adequate levels of consumer protection.

Firms will be held to a higher standard, with the rules regulated and enforced differently too. At a big picture level, the FCA is focussed on becoming more data-driven, and as far as the Consumer Duty goes, this will allow earlier intervention to avoid practices that prove detrimental to the customer becoming entrenched as market norms.

What are the key challenges facing firms?

New Customer Duty rules will be applied proportionally, taking into account a firm’s role in relation to their products or services, the nature of said products or services, and the characteristics of their consumer base. For those firms with products or services falling with the Customer Duty scope, there are a number of challenges to consider:

The rules will permeate all levels of a firm

The rules will impact the end-to-end product governance process, including product and service design, distribution, and delivery. Getting products and services right from the outset will be key, with the principle of ‘delivering good outcomes for retail customers’ expected to be understood, lived and breathed at every level of the organisation given it will become a new individual conduct rule under the Senior Manager and Certification Regime.

Meeting the scale of change will be demanding

The challenge for firms comes in the magnitude of change involved, having to monitor, assess, understand and evidence the outcomes that their customers are receiving. For many this will likely require a significant investment in data and technology, and there are already firms highlighting that they may have to withdraw some products and services due to the higher compliance costs involved in meeting the new requirements. Whilst this is not an outcome the FCA wants, they have been clear that they are not budging on their expectations.

Not a ‘one-and-done’ exercise

An end-to-end product governance review cannot be viewed a one-off exercise to be completed ahead of the regulatory deadline. Instead, firms will be required to report at least annually on whether it is acting to deliver good customer outcomes in line with the Consumer Duty. This is clearly far from a quick, annual tick box exercise.

The timeframe is short

Firms have only nine months within which to comply with the new rules from their release in April 2023.

The application of the rules

Whilst the FCA has provided detailed explanations and examples on how it expects the Consumer Duty will apply in practice, firms naturally have questions about the application of the rules in reality. Questions have also been raised around whether the Financial Ombudsman Service will take a more expansive interpretation of the new duty, potentially creating misalignment with the FCA’s position and intentions.

Five steps firms can be taking now

The concluding consultation draws to a close on 15^th February 2022 meaning the new Consumer Duty rules are yet to be finalised, however, firms can begin to take preparatory actions. These include:

1. Fully understand the Consumer Duty

Firms need to understand the detail behind the Consumer Duty, which replaces and imposes higher standards than Principle 6 (TCF) & 7 for retail (clear, fair and not misleading communications). The examples the FCA provides within Consultation Paper 21/36 (CP 21/36) are not exhaustive but provide a useful indicator as to how the rules will be applied in practice.

2. Ensure that Senior Managers are aware of their obligations

This is essential, particularly given the fact that the rules permeate the end-to-end product governance, and all levels of an organisation, as described above. Senior Managers must take responsibility for their role in complying with the new duty.

3. Identify changes required to implement the rules

This should include an assessment of how easy it is for customers to make well- informed decisions. This naturally necessitates a review of product and service design, customer journey design, and associated policies and processes – the Consumer Duty rules should see firms working on true end-to-end transformation, avoiding working in front or back office silos,for example.

Naturally, changes will also be required to systems, it is unlikely, for instance, that systems already capture all key data points firms would use to evidence the outcomes customers are receiving.

4. Consider how to demonstrate fair value

Firms are aware that their products and services need to meet the needs of consumers - under the new duty firms will also need to demonstrate that products and services offer fair value. This will involve proactively assessing the benefits that consumers can reasonably expect from the firm’s product and services, and ensuring these benefits are reasonable relative to their price.

Fair value product governance requirements already exist for the insurance sector under the General Insurance Pricing Practices (GIPP).  The design and implementation of this aspect of the Consumer Duty is likely to be the most complex of all the requirements. As with the GIPP requirements, the needs of vulnerable customers must be considered, as these customers may be more susceptible to receiving poor value, and should not be placed at a disadvantage by a firm’s products and service.

5. Evidence consumer outcome monitoring

Firms need to focus on the actual outcomes experienced by consumers, ensuring they take action to avoid foreseeable customer harm- which is no mean feat. Though it is ultimately up to firms to determine what data they collect and how the collect it in order to evidence customer outcomes, is likely to be a relatively complex undertaking. Whilst firms will no doubt lean on traditional metrics such as Net Promoter Scoring (NPS) and customer feedback (eg. complaints, expressions of dissatisfaction), further opportunity lies in demonstrating proactive prevention of foreseeable harm via use of data and solutions such as speech analytics, social listening and voice of the customer programmes.

Consumer Duty – In conclusion

The arrival of the new Consumer Duty presents another regulatory consideration for banking and insurance firms engaged in the supply of products and services to retail clients. Customer-focused firms will look at this in a positive light – as an opportunity to further strengthen their relationships with customers over the short and long term, and to build trust, advocacy and loyalty.

Importantly, this opportunity to utilise the requirements behind the new Consumer Duty as a positive influencer of customer experience is available to any firm. In taking the five preparatory actions listed within this article, for example, firms will be able to begin navigating the Consumer Duty requirements successfully and look forward to building stronger relationships with their customers.

* The FCA Consumer Duty was confirmed on 27^th July 2022 with a 12 month timeline for implementation. To discuss how we can support your implementation plans get in touch*

As Director of Risk and Compliance for Webhelp, Faye Sadler-Clark supports our mission to be leaders and experts in delivering low risk solutions that help our clients and colleagues to innovate and stay safe. She has over 14 years of experience of working in the financial services industry. Faye has deep understanding of the challenging operating context faced by senior leaders today from her diverse experience in change, operations, consulting, and risk and compliance across the UK, Europe and Asia Pacific.

Hayley Monks

January 14, 2022 by

Say hello to Hayley Monks

Managing Director | Utilities

Hayley is a highly motivated, inspirational and energetic individual. An excellent speaker with a strong commercial acumen and creative thinking, she thrives on driving and delivering transformation by creating effective followship.

Having worked in senior executive roles, and with a ‘can do’ attitude, she contributes significantly at every level from strategy to delivery – she understands what good looks like.

Consulting experience

British Gas

Credit Operations Director – accountable for the management of the credit and risk operation across the entire B2B business. The included a wide customer range; from SMEs to FTSE 100 businesses. The performance of the collections activity on over 1 million accounts was a significant driver of financial performance in the business.

Centrica

Head of Credit & Risk – responsible for the credit risk and operational collection activity for SME business in the B2B business. The SME business represented 70% of the Bad Debt charge in the business. My key challenge was a significant reduction in P&L cost through developing effective collection strategies at reduced operational costs.

Supported by external consultant I developed a 2year plan to reduce the BDC by 50% whilst not increasing operational costs or damaging margin.

3663 formerly Booker Food Service

Group Credit Manager: Headhunted to lead a team of 70 people in the collection and account management of a wide range of Food Service customers. Reporting to the Finance Director, I lead this department through a series of process improvement and engagement activities which delivered an improvement in DSO from 69 to 39. This was a significant contributor to the cash flow and financial stability of this business.

Management experience

Think Inspire and Create Ltd

Managing Director, specialising in business process improvement and people skills development. It has supported FTSE 250, AIM listed and private organisations across the utilities spectrum and other industries including retail, education, science and leisure

British Gas

Global Customer Services Transformation Lead, heading the customer service transformation for British Gas Business. Accountable for the transformation of the Customer Care function across multiple locations.

British Gas

Director of Service & Operations, Corporate Market. Led an improvement in the join journey which resulted in a reduction in ‘in life’ disputes, reduced cost to serve and improved NPS.

Nathalie Choi

November 2, 2021 by

Say hello to Nathalie Choi

Principal Consultant

A finance and operations improvement specialist with global experience across financial, insurance, technology and education sectors

Nathalie has 10 years accounting, finance and operation experience, 5 of which were spent in financial services as well as 5 years in online education technology, specialising in financial and operational transformation and process optimisation across EMEA and key emerging markets. Her motto is “Work Hard and Enjoy Life”. Her enthusiastic, versatile personality coupled with an excellent sense of humour brings her enjoyment in working with different people from different backgrounds.

Consulting experience

Redesigned the mortgage underwriting process and co-created a quality framework for one of the fastest growing mortgage lenders, resulting in 25% reduction in mortgage application turnaround time and 100% success rate in staff upskilling.

Identified process improvement opportunities in the offshore operation centres of a FTSE 100 bank, leading to significantly reduction in overwork, FTE and overtime costs.

Provided operational excellence coaching to over 50 team leaders & internal coaches for multiple world-leading banks and insurance companies. It includes well-utilising tools and lean concept in work environment, identifying continuous improvement opportunities and accrediting candidates on delivering coaching programme.

Identified and recommended the best business development opportunities and go to market strategies in China for one of the largest international publishers.

Led a cross departmental team of five to automate a US$100 million subscription revenue reconciliation process. This IT automation project successfully reduced the reconciliation process turnaround time by 66% and increased the accuracy of financial results by 80%.

Designed new and improved existing analytical methods to enhance the accuracy of analytical results by 30% for better business decisions.

Conducted a financial and operational restructuring for a US$17million worth R&D team with a 250-person staff to minimise unnecessary costs and improve the structure clarity and operation efficiency.

Management experience

EF Education First: Global Financial Planning and Analysis Manager. Led a team of three to deliver a quarterly financial forecast, including analysis and annual board meeting deliverables.

EF Education First (Asia): Assistant Business Controller. Managed a budget for a 250-person R&D team and an over 500-person teaching team.

Deloitte Touche Tohmatsu: Audit Senior. Led engagement with a team of 10 covering five countries to provide clients with professional Finance Assurance Service.