Payments Consumer Duty multi-firm review

The best firms considered that implementation of the Duty and improved customer outcomes aligned with their own long-term interests. They tended to have clearly articulated customer-centric purposes and understood what good outcomes and foreseeable harms looked like for their customers. They tended to have strong governance and control frameworks which they used to scrutinise and challenge the firm’s implementation of the Duty and deliver any enhancements required.

The firms who were best able to show compliance with the Duty tended to have a systematic implementation approach. This started with clearly identifying the target market for their products and services and what good outcomes looked like for products and services, price and value, consumer understanding and consumer support. They had a clear governance structure to monitor delivery of good consumer outcomes and to take action to address shortfalls in a timely manner. This included regular summary management information (MI) aligned to each of the 4 outcomes reported to their Boards. Often this MI included Red, Amber and Green (RAG) rated measures with conclusions drawn from the data. These conclusions clearly identified any shortfalls, the mitigating actions required and who was responsible for delivering these actions. Adopting this approach is helping firms to embed the Duty and take actions to deliver good consumer outcomes in a sustainable and efficient way.

Other firms did not appear to have recognised the higher standards the Duty requires of their business. Or they suggested that their payment products or services did not present the same risks to their customers as other FCA-regulated products like investment or pension products. They therefore considered that they did not need to make changes to comply with the Duty.

These firms did not show the same level of challenge in their implementation of the Duty and tended to rely more on pre-existing processes and controls. While products and services offered by firms in the payments sector may present different risks from those in other sectors, they still present significant inherent risks of poor consumer outcomes. We expect firms operating in the payments sector to have effective controls in place to make sure they consistently deliver good outcomes to consumers and effectively correct any shortfalls in a timely manner.

Firms with a less effective approach to embedding the Duty had often not clearly defined their target market or set out the good consumer outcomes they wanted to deliver. Many had also applied their existing MI measures such as complaints and online product reviews, without building on them or linking them to the Duty outcomes. This is likely to make it challenging for these firms to clearly identify where they are delivering good outcomes under the Duty or pinpoint any shortfalls.

We expect firms to specify the target market for their products to a sufficiently detailed level, taking account of the characteristics, risk profile, complexity and nature of the product.

We noted target markets were generally set relatively widely. Wide target markets can be appropriate in some circumstances. For example, with low-risk products designed to meet the needs of a broad range of consumers. However, an inappropriately wide target market risks firms not identifying the true risk of their product or service delivering poor outcomes to consumers. It also makes it more difficult to identify potential harm caused to customers if the products and services are not the right fit. High and medium-risk products are likely to require narrower well-defined target markets to reduce the risk of harm and avoid customers being sold products that do not match their risk appetite.

Payments firms are responsible for the actions of their agents and distributors. We expect them to have appropriate systems and controls to oversee their activities effectively, including compliance with the Duty.

Where firms have delegated activities to their agents, we expect them to monitor that the Duty’s requirements are met.

Our review raised concerns that some firms had not adapted their monitoring processes to be able to demonstrate that their agents were complying with the Duty. Firms tended to have specified some form of onboarding and training which they supplied to their agents. However, it was less clear what ongoing monitoring was in place to confirm that principal firms and their agents complied with processes set out in this training and associated policies and met the Duty’s requirements. 

For example, in some instances, firms specified that communications and support services were to be delivered to retail customers by their agents. However, it was unclear what ongoing testing firms did to ensure that agents delivered prescribed disclosures, other customer communications and support services, in practice.

The Duty requires firms to ensure products provide fair value to retail customers. Firms must undertake fair value assessments to show if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive.

In assessing fair value, we expect firms to consider at least the nature of the product including the benefits that will be provided, any limitations that are part of the product or service and the expected total price customers will pay, including all applicable fees.

Many fair value assessments fell short of our expectations particularly in the nature of the supporting analysis provided.

Some firms argued that as challengers to established payment providers they had to offer a competitive price and therefore provided fair value.

Other firms’ analysis was limited to benchmarking their price or prices against those of competitor firms. Whilst benchmarking prices are an additional factor firms may consider, it is not a substitute for the broader consideration of costs and benefits.

We also noted that firms offering products with a menu of charges depending on product use did not always consider how these charges affected different groups of consumers based on what they knew about how customers use their products.

Finally, many firms listed the elements that made up the price and value picture but did not take the last step and clearly assess whether fair value was provided or give a clear rationale for this assessment.

We want firms to support their customers to enable them to make informed decisions about financial products and services. The Duty requires a firm to support retail customers’ understanding so that its communications meet its customers’ needs.

We saw examples of good communications to retail customers which were tailored to the customer, the complexity of the product and the communication channel used. Good practice included some firms testing their communications to make sure they were clear for consumers. It also included monitoring the impact the communication had, to identify whether they are supporting customers to make effective decisions and deliver good customer outcomes.

In some firms, we found it difficult to see much change in their approval processes for customer communications from those that existed before the Duty came into force. We did not identify a significant amount of pre-testing of consumer communications. Some firms said they did test communications. Examples include pre-testing among target consumers or using groups of staff with similar characteristics to the target market.

We found that monitoring of consumer understanding after the communication was sent out was limited. Firms used a variety of data sources for their consumer understanding MI. One firm regularly emailed surveys to its customers to test their understanding of online and other customer communications. Some firms used the number and nature of complaints as a measure of customer understanding. Other firms pointed to email open rates – but this does not indicate understanding.

We expect firms to make sure they have an effective way of testing communications. This should include regularly assessing whether their communications support effective customer decision-making and identifying and dealing with any shortfalls.

Firms should provide support that meets their customers’ needs. Firms with best practice were able to clearly demonstrate how they are helping consumers act in their own interests and realise the benefits of the products and services.

We identified some firms where signposting of some customer support services was unclear, risking customers not being able to access these services. In some firms the volume of complaints suggested shortfalls in delivering support that met customers’ needs.

We expect firms to provide readily accessible and effective support channels appropriate to their target market consumers and others who hold their products and services covered under the Duty. We also expect firms to clearly signpost these services to consumers via channels appropriate to their customers’ needs.

If firms identify customer support issues from available MI, including complaint information, we expect them to take prompt action to correct them.

A common source of complaints from customers of e-money firms relates to the lack of communications from firms when their account had been frozen. In these cases, firms are often prevented from responding to some customer enquiries due to financial crime requirements. Some firms had reviewed their customer support in this area making sure that, where they were not bound by financial crime constraints, communications about the reasons for account freezing were improved.

The Duty should be reflected in a firm’s governance, strategies, people policies and incentives and these should support good customer outcomes. Firms should be able to demonstrate that their management and board appropriately considers Duty matters and can exercise their functions under the Duty.

We sought to establish what information was given to the firm’s Board or senior governing committee about Duty implementation and the degree of challenge over it. In most cases, it was clear that the Board was given information in the form of documented Board packs. But generally, we did not see much challenge to Duty implementation reflected in the Board or senior governing committees’ minutes. Similarly, we did not see much evidence of firms’ Consumer Duty Champions bringing matters concerning the Duty to the attention of firms’ Boards or senior governing committees.

Some firms changed their people policies because of the Duty. For example, introducing additional training for staff on identifying vulnerable consumers and ensuring they adopted a flexible approach to serving them. However, there was less evidence that firms had challenged whether remuneration and incentive policies could lead to foreseeable harm.

A key part of the Duty is that firms assess, test, understand and evidence customer outcomes. Without this, it is impossible for firms to know if they are meeting the Duty’s requirements, and good MI is central to that. We expect firms to have a comprehensive suite of MI relevant to their business and to act where it suggests good outcomes are at risk.

Firms which could clearly identify if they were delivering good consumer outcomes and potential shortfalls had metrics that directly evidenced Duty outcomes. These data sources were clearly aligned to each of the Duty outcomes and had triggers which would require investigations. Owners were assigned to identified issues and were tasked with reporting to management on resolving these issues.

However, creating a robust and sustainable MI suite was the biggest challenge for many firms. The challenges included identifying metrics that were directly relevant to the Duty outcomes, and which could be collected regularly. Other firms had identified too many metrics to be usefully tracked regularly over time. Some firms had collected relevant data, but it was not clear that it was being used for Duty purposes or not drawn together with other relevant metrics. Some firms had identified metrics relevant to the Duty but did not link these to the Duty’s cross-cutting rules or outcomes lenses (products and services, price and value, consumer understanding, and consumer support).