It was mentioned by one of the panelists at the Credit & Collections Technology Think Tank in early November 2021 that it’s really important to improve financial education, do you have any ideas how to do this, who it would be targeted to, and when?
There seems to be an expectation that consumer/end user knowledge and capability is as up-to-date as the merchants, intermediaries or lenders offering new credit products and/or the PayTech/FinTech behind them, whether these are direct lending products or a by-product of a more tangible purchase (e.g. new piece of tech, home fitness equipment, replacement vehicle, post-pandemic holiday).
In practice there is likely to be a major time lag for the majority of users beyond the ‘early adopters’. This is fairly apparent in the Open Banking space.
Better financial education should apply to all regulated firms, who should already be thinking around their customer communication roadmap with the Consumer Duty coming into play from July 2022. Waiting for the next consultation in early 2022 may be too late for some sectors holding high-risk permissions (e.g. DCAs, PayTechs, CRAs, DMCs).
We have just come to the end of Talk Money Week, an initiative which has been run by the Money and Pension Service (MaPS). This annual event aims to promote more conversations around money and promote financial wellbeing. The MoneyHelper site includes new guidance to help money skills for children of school age.
It is, however, a serious worry that 45% of adult consumers in the UK don’t feel confident in managing their money day-to-day. This is the evidence from the MaPS Financial Wellbeing Survey 2021. The flagship research of 10,306 adults (between Jul-21 to Sep-21) found that 19m people (36%) feel worried when thinking about their financial situation.
The MaPS research demonstrates that those whose household income has decreased and are still earning less than they were before the pandemic are less likely to feel ‘very confident’ about managing their money (38%) compared to those who’ve experienced little to no change in their income (54%) or an increase in income (57%) since the start of the pandemic. Building consumer confidence seems an important consideration for regulated firms, including recognising those consumers temporarily impacted by COVID-19 and where their circumstances may change at a future point.
Focus on security, privacy and building trust
Financial education should extend into identity & verification (ID & V). Strong Customer Authentication (SCA) should now be the norm (where the FCA has offered several extensions to regulated firms), with the expectation that this was fully adopted from September 2021. Customers need to be brought on this journey as well, where unexpected change to familiar login processes can undermine consumer confidence.
The FCA has just published its annual Perimeter Report and the report recommends that duties on internet companies in the Online Safety Bill should extend to paid-for advertising, as well as user-generated content. A key cross-market priority is taking action to tackle fraud.
Pre-contractual communications are critical
In BNPL, the regulator is looking at this from financial promotion to beyond end of the relationship, which can include future complaint handling and downstream detriment of the product or service relationship (e.g. Data shared, use of debt collectors). It is unlikely that merchants will become credit brokers under the proposed regulations, so the burden of financial education will fall on the regulated entities providing the financial services and supporting digital technology.
The FCA has confirmed a key consumer priority is enabling consumers to make effective financial decisions and another is working with HM Treasury in bringing Deferred Payment Credit into the FCA perimeter.
There appears to be clear evidence of good practice, which needs to be taken onboard. Looking at other sectors where this has been readily adopted should be a good starting point. Building in stronger security, fraud prevention and scam awareness seem critical components of this journey. During the pandemic use of cash reduced dramatically and many consumers undertook the majority of their banking online. Contactless payment thresholds have gone up to £45 and then more recently to £100.
These may seem like small steps, but they are major behavioural changes that are likely to ‘stick’ along with a recognition that you may well have to use an alternative contact medium to get support from financial services providers. Webchat and virtual assistants are far more common than at the start of 2020. Consumers have grown used to agents working from home (i.e. hybrid working).
A really important financial education message that is much more common now is where providers tell their customers of what to look out for in terms of fraud and scams, including really suspicious scenarios.
Digital Financial Literacy (DFL)
One early challenge is recognising that there are significant gaps in Digital Financial Literacy (DFL) amongst your target customer audience and that this is likely to be reflected in your Conduct Risk Framework and over-arching risk appetite. DFL education strategies need to be particularly targeted to disadvantaged groups to narrow these gaps and avoid financial exclusion where this is practical to do so.
Digital technologies play a key role in financial inclusion, as demonstrated by the meteoric rise of mobile money across emerging markets in recent years. This has been accelerated by the pandemic.
Digital education (EdTech) is a big market. Financial education should be part of this. The global digital education market size is expected to reach $7.23 billion by 2028. As the digital transformation continues to penetrate the education industry, the latest technologies and new and creative techniques are being used to deliver knowledge and educational content, thereby transforming learning & development. Looking forward to the future, digital education is predicted to benefit several beneficiaries across various geographies, demographics, ages, and socioeconomic conditions.
HM Treasury (HMT) and the Bank of England announced on 9 November 2021 the next steps on the exploration of a UK Central Bank Digital Currency (CBDC). CBDC would be a new form of digital money issued by the Bank of England and for use by households and businesses for their everyday payments needs. It would exist alongside cash and bank deposits, rather than replacing them.
In 2022, HMT and the Bank will launch a consultation which will set out their assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC. It will evaluate the main issues at hand, consider the high-level design features, possible benefits and implications for users and businesses, and considerations for further work. How do we prepare UK consumers for this if this becomes relevant to your target operating model (TOM)?