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How Electronic Money Institutions and Payment Institutions can implement the Consumer Duty

This article looks at how payment institutions and electronic money institutions should approach the new Consumer Duty from understanding its application to implementation.


The Consumer Duty or 'the duty' for short, consists of the following:


1. Principle 12


2. Cross-cutting rules that firms must:

  • Act in good faith towards retail customers

  • Avoid foreseeable harm to retail customers

  • Enable and support retail customers to pursue their financial objectives


3. Four outcomes:

  • - Price and value

  • - Products and services

  • - Consumer understanding

  • - Consumer support


The Consumer Duty applies to all firms under FSMA, including payment institutions and electronic money institutions. Its application ranges from product origination to distribution and post-sale activity.



Article 12


Article 12 requires payment institutions and electronic money institutions to deliver good outcomes. Accordingly, payment institutions and electronic money institutions must proactively deliver good outcomes and put their customer's interests at the heart of their activities. Payment institutions and electronic money institutions must show an understanding of customer behaviour and their product function. Where poor outcomes are identified, payment institutions and electronic money institutions must put in place processes to tackle them. payment institutions and electronic money institutions must continuously and consistently challenge themselves to ensure that their actions are compatible with delivering good outcomes.



The cross-cutting rules


The cross-cutting rules require payment institutions and electronic money institutions to act in good faith. This requires payment institutions and electronic money institutions to work with customers in an honest and open way and not exploit their customers' lack of knowledge. Payment institutions and electronic money institutions are recommended to create a culture where staff are encouraged to act in good faith. Payment institutions and electronic money institutions may wish to assess their existing remuneration and incentive structures to ensure that they do not hinder this. At the product design and development stage, payment institutions and electronic money institutions can act in good faith by delivering fair value and not causing customer harm. Creating products and services where customers are able to easily understand product and service features and price is encouraged. payment institutions and electronic money institutions should support customer understanding by promoting products in a way so that they do not mislead the product/service benefits or risks e.g. burying specific contract terms.


The cross-cutting rules require payment institutions and electronic money institutions to avoid harm. They should therefore consider the pricing and value of their products and services from the product design stage and ensure that they will meet consumer needs. Consumer harm should be avoided throughout the product lifecycle, starting from product design. Payment institutions and electronic money institutions may wish to monitor potential harm through different data sources, including, managing information, dear CEO letters and customer complaints.


Accordingly, payment institutions and electronic money institutions can avoid consumer harm by:

  • Communicating product terms clearly and highlighting risks

  • Consider consumer information needs at POS and throughout the product life cycle

  • Test communication to support customer understanding in order to make effective decisions


The third aspect of the cross-cutting rules requires payment institutions and electronic money institutions to support consumers in helping them make decisions and pursue their objectives. This entails supporting consumers with information or support to help them pursue their financial objectives. Payment institutions and electronic money institutions should help customers navigate the information they provide, making it clearer and easier to understand. The Duty requires payment institutions and electronic money institutions to have processes and systems in place to test and monitor the impact of the communication and use it to improve their processes. Customer support should not create barriers for customers to realise product or service benefits.



The four outcomes


The third limb of the Consumer Duty looks is the four outcomes, namely, price & value, products and services, consumer understanding and consumer support.


Payment institutions and electronic money institutions are now required to demonstrate that they are providing customers fair value to help them achieve their financial objectives. Price should be reasonable compared to the overall product or service benefits, including product features and quality. Customer needs should be met whilst products should be sold in a clear and transparent way, without leading to foreseeable harm. payment institutions and electronic money institutions should be satisfied that the product or service fees are not high compared to their benefits.


How payment institutions and electronic money institutions can assess fair value

  • assess features and benefits v price charged

  • take into account any product/service limitations

  • assess the expected total price the customer will pay over the lifetime of their relationship


Key considerations for payment institutions and electronic money institutions

  • Are you satisfied that all factors and data have been taken into account as part of your payment institutions and electronic money institution's fair value assessment?

  • Have you gathered data from all the parties involved in the distribution chain?

  • How do your products and services compare to similar products in the market?

  • Is the fair value to different groups achieved e.g. vulnerable customers?

  • What corrective actions have your payment institutions and electronic money institutions taken as a result of their fair value assessment?

  • What data, MI and other sources do payment institutions and electronic money institutions use to monitor the fair value on an ongoing basis? how regularly is this data reviewed?


The second aspect under the 4 outcomes involves products and services. In short, payment institutions and electronic money institutions must ensure that their products and services are well designed and are fit for their purpose. They must meet the product design needs, characteristics and objectives of the customers in their target markets, including those with vulnerable characteristics. The distribution strategy for products and services must be appropriate for the target markets. Payment institutions and electronic money institutions will be required to carry out regular reviews to ensure that their products and services continue to meet the needs, characteristics, and objectives of their target markets. These rules apply to manufacturers of products and services. A manufacturer is defined as a party involved in the creation, development, issuance, management, operation, carry out and underwriting of a product or service. The requirements will apply to both a manufacturer's existing and new products. payment institutions and electronic money institutions will be required to identify their target markets in dept, taking into account any potential harm associated with their products and services.


Key considerations for payment institutions and electronic money institutions

  • Is the target market adequately defined for its products and services?

  • Does its products meet the consumer needs, characteristics and objectives? If not, then what are your mitigation measures?

  • Have you identified whether its products are services have features which could harm vulnerable consumers?

  • Does your firm share all necessary information with other parties in the distribution channel?

  • Are you monitoring that its distribution strategies are being followed correctly?

  • What data and MI is your firm using to monitor whether its products and services are continuing to meet the needs of its customers and contributing to good consumer outcomes?


The third of the 4 outcomes involves consumer understanding. Consumers can only be expected to take responsibility where the payment institutions and electronic money institutions' communication enables them to understand their products and services. Firms should therefore support customers by helping them make informed decisions about their products and services. Customers should be given information that they need, at the right time, and presented in a way that can understand. Communication should be tailored I.e. on a 1-2-1 sales basis. Again, the rules apply at every stage of the product or service lifecycle, from product design to marketing and post-sales.


Key considerations for payment institutions and electronic money institutions

  • Is your firm applying the same standards and testing to deliver good outcomes as they do to sales?

  • What insights is your firm using to decide how best to keep customers engaged in the customer journey?

  • How is your firm testing the effectiveness of its communication? How is it acting on the results?

  • How does your firm adapt communication equally across all channels and types of customer groups?

  • What data, MI and feedback do the firm use for ongoing monitoring? How often is the data reviewed?


The fourth and final aspect of the 4 consumer outcomes involves consumer support. The FCA believes that consumers can only pursue their financial objectives if their firm supports them in using the product or service they have bought. The support should enable consumers to realise the benefits of products and services and pursue their financial objectives. payment institutions and electronic money institutions should make it at least as easy to switch products or make changes as it is to buy the product in the first place. Similarly, post-sale support therefore should be as good as the pre-sale support. Firms are now required to support customers throughout the lifecycle of the product or service.



Key considerations for payment institutions and electronic money institutions

  • How is your firm satisfied that customer support is effective regardless of channels?

  • What assessment has your firm made to meet customer needs with vulnerability? What data, MI and customer feedback is being used to satisfy this?

  • How has the firm satisfied itself that it is easy to switch or leave its products to buy them in the first place?

  • What data, MI & customer feedback is being used to monitor the impact of its customer support on the customer outcome?

  • How effective is your firm's monitoring and oversight of outsourced third-party service providers and do they meet the Consumer Duty?



How we can help


​In helping firms implement the Consumer Duty requirements, we are helping firms in a number of ways from complete project management and providing specialist project resources to adding consulting and advisory expertise as an external specialist partner.


Buckingham Capital Consulting is an international consulting firm, specialising in payment services, electronic money, banking, and investment services. We are able to advise you on the best course of action and strategy based upon your business plan and financial product or service. We can you with licensing, compliance, operational setup and related services, including, obtaining banking facilities. For more information, visit our website on www.buckinghamcapitalconsulting.com or call us on 0207 866 2512.



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