Defining and supporting vulnerable customers in an unstable economic climate

Empowering Vulnerable Customers: Explore the UK's growing focus on protecting and supporting vulnerable individuals, and how the FCA's New Consumer Duty is driving financial institutions to prioritise fairness and inclusivity
Dr Dexter Penn
CEO & Founder

In recent months, everyone has been bombarded with warnings from various news outlets about the economic situation unfolding in the UK. Undoubtedly, those living and working in the UK have been in a tenuous financial situation to varying degrees. Forecasts suggest that it will continue to be difficult for the foreseeable future, before it gets better, with recent reports stating that the Bank of England is struggling to tame inflation. People defined as vulnerable customers will be those struggling financially even before the economic storm started last year.

According to the FCA, in May 2022, 47% (or 24.9m) of UK adults showed one or more characteristics of vulnerability, unchanged from 48% (or 25.1m) in February 2020. We expect to see these numbers increase vastly.

Unfortunately, over the past few decades, this subsect of customers have been vastly underserved and greatly misunderstood by most of the population, including the finance industry, as the term ‘vulnerable customers’ has been quite ambiguous and not sufficiently defined.

In Kalgera’s eyes, the term refers to individuals who, due to personal circumstances or characteristics, are more likely to face difficulties in accessing or using financial products and services. These customers may include the elderly, individuals with disabilities, those suffering from mental health issues, low-income households and individuals with limited financial literacy. Vulnerabilities can arise from various factors such as age, health conditions, socioeconomic status, or even temporary circumstances like bereavement or unemployment.

Some people who may not have been considered a ‘vulnerable customer’ in recent months will likely see their circumstances change and therefore, in the eyes of financial institutions and the Financial Conduct Authority (FCA), may be defined as such whilst the economic situation continues to unfold. This will cause new, unexplored territory for institutions as the pool of vulnerable customers becomes wider and not as restricted to the usual criteria applied to vulnerability within financial services.

On the upside, the finance industry is becoming much more aware that vulnerable customers require special attention and protection to ensure that they are not exploited or excluded from essential financial services. In the UK, recognising and addressing the needs of vulnerable customers is becoming a critical responsibility for financial institutions as the Financial Conduct Authority’s (FCA) New Consumer Duty comes into place at the end of this month.

At Kalgera, our technology and models help institutions define and identify vulnerable customers, whilst continuously highlighting the significance of supporting and safeguarding their interests. Defining who these customers are is the first step to successfully serving them properly and fairly, the second of which is deeply understanding the challenges they face and solving the problem at hand.

So, what challenges do these customers face?

Historically, vulnerable customers encounter several challenges within the financial system. These include difficulties in understanding complex financial products, facing high-pressure sales tactics, falling victim to scams or fraud, experiencing discrimination or bias and being excluded from mainstream financial services. Financial decisions can be overwhelming for vulnerable individuals, and without proper support, they may face financial exploitation or end up in unfavourable situations.

What is the FCA doing to support these individuals?

Financial institutions have a crucial role in safeguarding vulnerable customers. Recognising the importance of protecting vulnerable customers, the UK financial sector operates under a robust regulatory framework. The FCA has set strict rules and guidelines for financial institutions to ensure fair treatment of vulnerable customers under the New Consumer Duty which will come into effect at the end of July (31st). Firms will be expected to identify, support, and provide appropriate products and services to meet the specific needs of vulnerable individuals, plus will require firms to train their staff adequately and implement policies to prevent financial abuse and exploitation.

What can financial institutions do to support vulnerable customers?

Financial institutions should adopt inclusive practices, provide accessible information and ensure that vulnerable customers are not unfairly disadvantaged. This can involve offering tailored advice, simplified products, or alternative communication channels to accommodate different needs. Clear and transparent communication is key to empowering vulnerable customers and enabling them to make informed financial decisions. Additionally, collaboration with charities, consumer advocacy groups, and other stakeholders can enhance the support network available to vulnerable customers.

Although all of these actions are important to supporting the most vulnerable, the optimum outcome would be to prevent any type of financial predicament for the customer. Ultimately, this would be in the best interests of all parties involved.

Timely intervention from any financial institution can give a customer more breathing room, financially, and actually salvage a relationship with the individual whilst creating goodwill and positive PR from a branding perspective.

In-house, our models identify patterns in behaviour that could result in vulnerability and allow the bank to get ahead of these unfortunate outcomes. We see it as being a key element, coupled with the actions above, to supporting customers who cannot help themselves when found in these situations.

The financial well-being of vulnerable customers continues to be a significant concern in the UK. Financial institutions must prioritise the fair treatment and protection of these individuals. By adopting inclusive practices, implementing regulatory requirements, and providing appropriate support, the UK financial system can create a more equitable environment that promotes the financial resilience and inclusion of vulnerable customers, something that all of us at Kalgera care deeply about and have been working tirelessly to advocate over the past years.

About Kalgera

Kalgera, a London-based RegTech, is the first line of defence for financial institutions who want to actively support its most vulnerable customers. By helping the finance sector identify customer vulnerability through transactional data, Kalgera creates better outcomes for the customer and the financial institution itself.

We are committed to working with banks through several avenues to comply with the FCA's Consumer Duty Act. Kalgera’s state-of-the-art technology uses 11 parallel AI models to pinpoint vulnerability to financial abuse and low financial resilience with greater precision.

You can find our online training, in association with the London Institute of Banking and Finance (LIBF), here and more information over at our website.

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