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How banks and building societies are affected by new FCA guidelines regarding vulnerable customers

Protecting and helping vulnerable customers is an opportunity for banks to build trust and increase financial inclusion

Earlier this year, the financial regulatory body, the Financial Conduct Authority (FCA) issued guidance for financial institutions’ fair treatment of vulnerable customers

The guidance exists to help financial institutions better understand the needs of vulnerable customers – and make the necessary changes to ensure they are being treated fairly and are able to experience outcomes that are as good as any other consumers. 

As it stands, many vulnerable customers are excluded from the financial system, face difficulties in gaining fair access and good customer experience – or are more susceptible to becoming a victim of fraud. 

The FCA guidelines outline four areas for banks and financial services providers to take action: 

  • understand the needs of their target market / customer base;
  • make sure staff have the right skills and capability to recognise and respond to the needs of vulnerable customers; 
  • respond to customer needs throughout product design, flexible customer service provision and communications; 
  • monitor and assess whether they are meeting and responding to the needs of customers with characteristics of vulnerability, and make improvements where this is not happening

We, at Kalgera, share this vision; we were born of a deep desire to better protect the financially vulnerable. The after effects of the pandemic are leading an increasing number of people to find themselves at risk of financial harm. 

Rise in vulnerability due to COVID 19

The FCA’s Financial Lives Survey, concluded in February 2020 and repeated in October 2020, demonstrates the impact of coronavirus on personal finances. More than half (53%) of UK adults are displaying a characteristic of vulnerability. This is a rise of more than 3 million potentially vulnerable customers since February 2020, and many of these people may have multiple characteristics of vulnerability. 

Figure form the FCA report showing the proportion of adults who show characteristics of vulnerability (April 2017 / Feb 2020 / October 2020 )
Source: FCA’s Financial Lives Survey

Additionally, three in eight adults (38% or 20m) have seen their financial situation overall worsen because of the stresses of Covid-19. Lockdown restrictions have seen many people unable to work for extended periods of time, working less or being subject to reduced pay, which has resulted in unexpected falls in income levels. Some business owners were able to invest or borrow to pivot and diversify their offering – but for those who lacked the means to, the consequences have been dire, seeing otherwise successful businesses fail, leaving more people financially and emotionally vulnerable.  

The nature of the pandemic meant no one saw it coming, leaving most of us unprepared for such a situation – both financially or mentally. For those who were living hand to mouth, the consequences have been devastating and the prolonged periods of uncertainty have taken their toll. 

Some of the worst hit sectors, such as services, hospitality and the entertainment industry, are also among the lowest paying – unfairly affecting those workers, and leaving even more people financially vulnerable perhaps for the first time in their lives. Others have been forced to homeschool children while also fearful of keeping their jobs at a time of mass redundancies. 

Sadly with the end of the furlough scheme looming, a hike in energy prices and a reduction in Universal Credit payments, we can expect to see more people becoming financially vulnerable.  This triple whammy is why it’s more important than ever that we as a sector come together to identify and protect financially vulnerable people.

This can be an arduous, difficult and time consuming task for banks and financial institutions – and it’s likely that pressure to meet the guidelines will only increase as time goes by. Currently, they rely on resource-heavy manual processing or face the prospect of considerable investments in time and cost to build in-house tech to meet the FCA’s guidelines.

While some institutions have dedicated vulnerable customer teams, many do not or provision is limited as knowledge, expertise and equipment is in its infancy. Sadly, the needs of vulnerable customers have been relatively unknown – or simply gone undetected until it is too late and the damage is done. 

Identify and protect vulnerable customers

This is where we come in – our smart platform enables banks and other financial institutions to identify and protect vulnerable customers from financial harm using our proprietary Artificial Intelligence (AI) platform. It uses cutting-edge cognitive neuroscience research to analyse financial behaviour captured in transaction data. Processed with ‘deep tech’ data science it can interpret financial behaviour – and automatically self-improve using AI. This helps build a profile of vulnerable characteristics that can be used to help identify vulnerable customers before it’s too late to intervene. And, as we all know, prevention is better than cure.

The Kalgera platform also helps financial institutions keep up with, comply with – and surpass – regulatory guidelines (such as those issued by the FCA), while also providing enhanced levels of service to customers. Over time, this can help improve customer experience and build trust and loyalty. 

The platform can be integrated to run on the existing infrastructure of banks and building societies, meaning it benefits from the same level of safety and security, giving banks and their customers added peace of mind. It also makes the experience seamless and a built in part of everyday banking services, rather than an add on or afterthought. 

We believe access to banking and financial services should be accessible and equal – and that vulnerable customers should expect the same experience as anyone else. Our founder,  Dexter Penn, is part of the clinical trials team at the Dementia Research Centre at the UCL Institute of Neurology. It was through his work into Dementia and Alzheimer’s disease that the idea for Kalgera came to life. He recognised there was a gap in the provision of, and access to, fair financial services for people with vulnerabilities or cognitive impairments. The specific challenges they face are not readily solved or easily serviced by the sector. Kalgera wants to change that. 
We have previously participated in the FCA’s Digital Sandbox Pilot in 2021, which focused on vulnerable customers, providing synthetic data for teams to validate their potential solutions on, and are interested in positively collaborating with banks and financial institutions. This means, collectively, we can play our part in better identifying and protecting vulnerable customers and ensuring the FCA guidelines are met – and surpassed.

For more on Kalgera’s vulnerability platform click here.