Are you tracking your customer finance journeys? You should be…

As finance continues to be more integral to consumers, some inevitable changes are required in order to ensure the consumer is up to speed with the growing number of agreements they’re entering.

The FCA has recently announced its plans to introduce a new Consumer Duty, which aims to ultimately protect consumers who purchase financial services, and make understanding, changing and cancelling agreements an easier process.

In this post, we’ll look at what this change means for dealers, how it will impact your relationship with the customer and how to get prepared for when the changes come into play.

What is the consumer duty change?

The FCA’s new Consumer Duty is a regulation being introduced in order to set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.

In a recent press release, the FCA defined the new Consumer Duty as: 

“The Duty is made up of an overarching principle and new rules firms will have to follow. It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.”

Why these changes are important

For dealers, the changes being introduced by the FCA are aimed to make it easier for your customers to understand the agreements they are making with you.

Specifically, their intent is for firms to make sure all communications are understood by their target customers.

The hope is this will benefit firms by making lines of communication surrounding financial services clearer and easier to understand by parties on both sides of the table.

From a consumer perspective, it streamlines the entire process and means they only have to focus on what’s important to each specific agreement - instead of having to digest an industry’s worth of jargon.

The FCA is hoping the introduction of the Consumer Duty will help improve standards and reduce the possibility of harm happening to the consumer, making it easier and quicker for everyone to respond when issues arise.

Why is the FCA introducing these changes, and what does it mean to you?

The new Consumer Duty principle will mean many dealers and motor finance companies need to track customer journeys more closely in the future.

Retailers will need to make sure accurate and relevant information is presented to consumers at all stages of the finance buying journey.

That means making sure the consumer is aware of what they’re agreeing to at every step of the buying journey, be that in your showroom, or on your websites.

Our CEO, James Tew, told us that the new shift to “putting customer needs first” represented a genuine change in the way that the process of choosing a finance solution needed to be presented and recorded.

“The FCA has been explicit that the new principle very much raises the bar when it comes to how customers are treated when being sold finance products –  and the motor retail sector must react accordingly.

“Essentially, it places an onus on dealers and motor finance companies to track consumer activity every step of the way, whether that is happening online or in the showroom.

“The decision-making process and the information placed before the consumer at every point must be recorded and auditable. Those who cannot do this – and there are quite a number of them, in our experience – run the risk of potential action."

"We’re working our way with lenders and dealers through Consumer Duty, interpreting what it means in material terms for how motor finance is sold, especially increased recording of information and how that needs to be managed.

“There’s no doubt that it raises the bar and therefore represents quite a substantial shift compared to the way that business is being conducted now, placing potentially much greater responsibility on tracking consumer activity every step.

“The conclusion we are coming to is that on a practical level, any dealer that has a multi-lender panel and is running individual processes and systems for each – something that is by no means unusual – is going to have a difficult time ensuring that the necessary information is being logged by each in an appropriate manner.

“Instead of running perhaps three, four or five platforms in parallel and ensuring that they are all meeting the FCA’s requirements, it makes much more sense to run one ‘single point’ system that is compliant and gathers all the data in one place.

“Crucially, the solutions that prove most effective are going to have to work for the hybrid buyers who switch between showroom and digital channels at will. These make up the vast majority of consumers buying cars in the 2020s.”

What do you need to do to get on board with the changes?

We’ve outlined some of the key things dealers should be aware of before the new Consumer Duty is rolled out over the next 12 months.

There are four main outcomes that have been updated since the FCA originally started working on the new principle, and here are 4 areas we think retailers should be paying special attention to:

Monitoring - Firms will be required to monitor outcomes experienced by their customers and regularly review their financial offerings to make sure the customers in their target market are continuously serving the best products for their needs.

Clarity on Price and Value - The new guidance sets out a list of factors that need to be considered when assessing the value of a financial product or service. The FCA has confirmed this needs to be done for most products, but does not apply to products that do not incur a cost to the consumer.

Clear Communication Practices - As mentioned above, a key aim of the principle is to make it easier for consumers to understand the agreements they’re getting into. Going forward, the FCA want firms to ensure all communications are supporting good outcomes for every customer.

Provide Consumer Support - The biggest addition is that of customer support. There is now a requirement for firms to ensure their customer journeys include “appropriate friction” to mitigate the risk of harm and give retail customers sufficient opportunities to understand and assess their options. It is up to individual firms to identify what actions make it more difficult for customers to act in their interests and will be required to apply judgement to distinguish between positive and harmful practices.

For now, the most important thing to consider is how you're submitting to your lender panel.

As the new consumer duty rolls out, much more responsibility is going to be placed on retailers to track consumer activity along every step of the finance journey.

Most retailers who are operating with a multi-lender panel, are very likely to be submitting applications and checks individually to those lenders.

Relying on separate processes and systems leaves too much room for error - something the FCA want to avoid when it comes to consumers' private information - and easy to do when running the same information through multiple systems.

The goal of the FCA is to make financing a new car as transparent as possible for consumers - something we believe is a positive move in the long-run. 

I’m using the iVendi platform on my website or in my showroom, do I need to do anything?

Based on what we currently know, we believe the iVendi platform is already compliant with the new principle being introduced - and has been ahead of the curve, as some elements of our products already provide the tools needed to clearly communicate financial products to new customers.

James, told us about some of the work we’re doing to make sure our platform is as up-to-date with FCA regulations as possible:

“We believe that the systems that we offer already meet the requirements that the FCA has outlined, but this is an area we are investigating closely and will be discussing in detail with the dealers and lenders we work with.

“It’s a subject around which there can be no compromise, and we are committed to ensuring our technology does as much as possible to meet the new principle in full.”

It’s important to remember the FCA has explicitly indicated that the move to Consumer Duty has a strong relationship to how personal finances would be affected by the changing cost of living, James added:

“The FCA are anticipating that the cost of living crisis will have an impact on personal finances within the next few years, and want to make sure that customers are receiving the best possible advice, guidance, and product choices within that framework.

“While Consumer Duty doesn’t take effect for 12-24 months, there is every reason to expect that the FCA will want our sector to up its game as we face what could be the worst recession in a long time. Motor retail should be taking note of this shift in tone.”

"It is our intention to be ready well in advance of the deadline given by the FCA. We want to make sure our products always support our partners in a comprehensive manner"

What can I do to prepare?

The FCA is giving firms 12 months to implement the new rules for all new and existing products and services that are currently on sale, followed by a further 12-month extension to closed-book products.

We believe iVendi systems already meet the requirements outlined by the FCA, but to make sure we've ramped up the conversations we're having with lenders and dealerships.

If you’re interested in the role technology plays in automotive Finance Penetration - you can read more in our guide ‘Nearly everything you need to know about how to maximise finance penetration’, which breaks down the modern consumer's finance journey and what they want out of finance products.