It’s a time of reflection and anticipation at The Fintech Times throughout December, as we look back at developments and trends over the last 12 months and forward to the year ahead.
We’re excited to share the thoughts of fintech CEOs and industry leaders from across the globe to 2023’s key takeaways and what we should expect to be top of the agenda in 2024.
Consumer Duty, a set of rules aimed at enhancing consumer protection in the financial services sector, came into force in July 2023. The Financial Conduct Authority’s (FCA’s) new rules mean that firms selling financial products now have to meet much higher standards.
Experts across the fintech industry envision a collective focus on collaboration between fintech firms and traditional banks, driven by a commitment to enhance customer benefits, transparency and personalisation.
Prepare to adapt
Banks will be forced to take a proactive approach to communications in order to continually comply with Consumer Duty regulations, says Andrew Stevens, principle, banking and financial services at software development company Quadient.
“2023 saw the introduction of a new Consumer Duty, setting higher and clearer standards of consumer protection across financial services, and requiring firms to put customers’ needs first. Financial services organisations spent 2023 preparing for and making the necessary changes to their customer communications to be compliant with the regulations and helping customers deal with a turbulent economy.
“But in 2024 – with the cost-of-living crisis showing no signs of easing up – it won’t be enough to simply comply with the regulations.
“To meet the demands and needs of customers in 2024, banks and financial services need to shift from reactive to proactive. The Consumer Duty regulations mean banks must prove they are acting in good faith towards their customers and offering more options to people who need assistance – for instance more flexible overdrafts, or lower interest rates.
“With Quadient and Signal research revealing only eight per cent of consumers actually understand information on new overdraft charges when tested, banks should remember that new Consumer Duty regulations aren’t just a ‘one and done’ thing.
“Consumer Duty rules are purposefully vague to allow them to automatically adapt to changes in customer needs, but this means banks will need to continually monitor their ‘reasonableness’ against expectations. In short, we’ll see a cultural shift in banking that prioritises long-term customer education and support.”
Catalyst for innovation
Carol Hamilton, chief product officer at Provenir, an AI-powered risk decisioning software company, thinks the Consumer Duty Act has served as a significant catalyst for innovation, prompting companies to personalise their products, improve transparency, and engage actively with customers throughout their journey.
“Even if a company’s initial effort was a mere compliance exercise, the efforts have genuinely facilitated positive changes, fostering better understanding and trust between financial service providers and their customers.
“In the year ahead, intelligent decision-making will take centre stage, with a focus on improving processes to become more sophisticated, customer-centric, and adaptable. The integration of data, AI, and scalable technologies will be explored to optimise risk and opportunity, challenging the traditional paradigm where risk mitigation often takes precedence. The industry is expected to witness discussions and initiatives aimed at balancing the delicate act of providing value to customers while managing associated risks.
“In 2024, the financial industry will focus on improving customer management strategies, likely from the adoption of AI. Fintech companies are increasingly shifting away from traditional monthly reassessment approaches towards more dynamic, data-driven, and intelligent methods that cater to the entire customer lifecycle.
“This departure from legacy practices aims to optimise decision-making, engagement, and value delivery for both customers and organisations. The emphasis will be on continuous interaction and personalised services, marking a departure from the once-a-month reassessment mindset.”
Shift in regulation
Alex Mifsud, CEO and co-founder at embedded finance company Weavr, anticipates a shift to outcome-based regulation in the financial sector, emphasising end results and innovation.
“In the coming year, I anticipate a new regulatory approach to start challenging financial services providers in the UK and beyond: the shift towards outcome-based regulation, a progression from foundational efforts like the UK’s Consumer Duty. The shift mandates a focus on the end results of actions within the financial sector, not merely assessing and addressing the risks involved.
“The Financial Conduct Authority (FCA) is a proponent of outcome-based regulation, recognising its dual capacity to safeguard while fostering innovation. This method is potentially broad in application and especially relevant for emerging trends, including highly specific interventions like Authorised Push Payment Fraud Compensation and more wide-ranging concerns such as the application of AI, where the FCA is already applying outcome-based regulatory strategies.
“At Weavr, we have been tuning our compliance as a service approach to provide the right tools for the coming changes.
More proactive
Rameez Zafar, co-founder of Eligible, which offers an AI-driven servicing solution for the mortgage market, comments on the responsibility that banks now bear under FCA’s Consumer Duty guidelines.
“Firstly, under the new regulations of Consumer Duty, there is a heightened obligation for banks to be more proactive in supporting their customers. Secondly, there’s a growing political focus on this issue, which has led to the government and banks signing a mortgage charter. This charter essentially commits lenders to utilise all available tools to support their customers – which has been even more important given the current economic climate.
“Banks bear a significant responsibility in helping Brits improve their financial literacy, and they are inherently motivated to refine their language in digital channels in order to do so. The crucial shift in the concept of financial literacy lies in recognising that it’s not merely about comprehension at the point of sale for financial products such as mortgages, credit cards, auto loans, and personal loans, as these are not everyday acquisitions.”
Improving transparency
2024 will be marked by fintechs partnering with traditional banks for customer benefit and innovation, with a continued focus on transparency and empowerment, especially through collaborative efforts, according to James Lynn, CEO of travel debit card Currensea and credit builder debit card BuildMyCreditScore.
“After an eventful 12 months in fintech, 2024 is set to be the year of collaboration. The key theme will be fintechs looking to partner with traditional banks, rather than competing against them. In a challenging financial landscape for both businesses and consumers, the benefits of partnerships are undeniable – enhanced value for customers, fintechs reaching new and larger audiences, as well as banks supporting the incredible innovation we’re seeing happening every day from agile new entrants in the market.
“Consumer Duty was clearly a huge focus for financial services firms throughout 2023 and this will have a knock-on impact during 2024 with focused efforts to improve transparency for customers. At Currensea, we’re committed to transparency by providing travellers with a simple solution to reduce foreign exchange fees. Similarly, our newest product, BuildMyCreditScore, also has transparency and value at its heart.
“Again, collaboration will play a pivotal role in the drive to transparency. As a result of partnerships between fintechs and the established players, there is an opportunity to provide consumers not just with innovative and great value financial products, but also products that are simple to use and understand which empowers people to make more informed decisions. Boosting financial inclusion has been a major focus for all firms across financial services, leveraging the power of partnerships is key to meaningful change.”
Focus on good service
The Consumer Duty Act was a major event for financial services companies in 2023, says Jim Wilkinson, CEO of Manchester-based car finance marketplace Zuto.
“Businesses have had to review all of their processes, communications and products to ensure their customers’ interests are considered through all regulated credit related activities.
“Zuto was founded to change the car finance sector for the better, so we welcome anything that will serve to improve the image of the industry. While technology enables fintechs like us to be more agile and to provide our customers with speedy responses and choice, we must not forget the importance of customer centricity.
“Communication and customer service need to be a key focus for 2024. In a survey of more than 2,000 of our customers, 82 per cent said good customer service was most important to them when taking out car finance. Providing easy to understand information and prioritising the customer’s best interests is the duty of our industry, especially in light of the struggles customers are facing with the ongoing cost of living crisis.”
Increased personalisation
Prioritising consumers’ wellbeing in 2024 will result in enhanced customer benefits and improved financial metrics for those willing to embrace this approach, says Campbell Shaw, head of UK banking partnerships at digital advertising platform Cardlytics.
“2023 saw the adoption of Consumer Duty by financial institutions and it supported the ongoing desire by most banks to place the customer at the forefront of all conversations internally and with external partners – akin to the ‘do the right thing’ mantra that drives successful and ethical teams.
“Carrying this into 2024 will bring tangible benefits for those banking customers. As part of this, we will see increased personalisation, based on spending insights, and more overt tagging of those valuable propositions like cashback on everyday spend. Such knowledge will put banks in a better position to help their customers through the continued cost of living crisis and whatever comes next.
“I’m excited to see who goes the furthest – and even who puts the customer before their own financial or shareholder value. Those who do will see both of those metrics enhanced. This is the clear opportunity ahead for those willing to truly grasp the nettle.”
Empowering customers
Fujitsu UK&I also expects the Consumer Duty Act to take centre stage in the coming months.
“Those that fail to adequately protect customers will risk falling behind more compliant competitors,” warns Hugh Coughlan, CTO, data and applied intelligence at Fujitsu.
“Financial institutions must prioritise customer well-being and ensure fair treatment for all, clear communication and ethical practices.
“A customer-centric approach where trust is earned through responsible conduct will be critical to enacting these changes. As regulators tighten their grip, institutions that uphold consumer rights will thrive.”
AI will play a role
“Though we are still a way from a financial system that truly has positive consumer outcomes at its heart, the FCA’s Consumer Duty rules are a hugely positive step,” says Sho Sugihara, CEO and co-founder of AI powered transaction analytics firm Fuse.
“This legislation has focused the minds of all financial services institutions and must become a powerful catalyst for long-term change to create a more holistic financial system.
“Banks and lenders have been under scrutiny from both regulators and consumers alike all and this doesn’t show any sign of easing in 2024. With 37 per cent of financially vulnerable people saying their bank could do more to help them make informed decisions, and the cost of living showing no signs of slowing, there are thousands of vulnerable people who are currently struggling, and banks will be searching for effective approaches to offer more enhanced support solutions.
“Technology and AI will play a pivotal role – around a third of lenders think that technology will become more important to provide bespoke tools and products to borrowers. Utilising real-time customer data to gain greater insight into borrower vulnerability and affordability, can identify those at financial risk allowing lenders to offer tailored support at an earlier stage before they develop into long-term financial problems.”
