Consumer Credit & Customer Centricity has been saved
Consumer Credit & Customer Centricity
Is the market ready to step up their game?
The landscape of the Consumer Credit market is changing. Not in the least due to the regulatory pressure of recent years. In her Agenda for 2019, the Dutch Authority for the Financial Markets (AFM) stated that one of her top priorities is “reducing undesirable risks in the financial markets through regular and thematic supervision”. This includes the focus of the AFM on financial products that are not suitable or even harm the clients to whom they are sold.
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This development applies in particular to loans in the consumer credit market. The AFM is clear in their point of view that players in the Consumer Credit market need to step up their game. Several parties have made an improvement, however, the question is whether all parties involved in the Consumer Credit market are taking the right approach.
An honest look in the mirror and a holistic approach
In the communication on her annual Customer Centricity Dashboard on Consumer Credit, the AFM additionally states that although she has seen improvement during the last couple of years, further refinement is still necessary. Instead of aiming at one specific topic, it demands the reconsideration of several components of the lending business. By not taking the interest of their clients sufficiently into account in crucial parts of the lending process, financial institutions face a fundamental problem within their organisation. To resolve such a problem it requires a response that goes beyond a quick fix. Putting their customers best interest central should be the foundation of your organisation and that is what the AFM calls Customer Centricity. For the record, Customer Centricity does not mean doing whatever the customer asks. It is genuinely looking at what the customer really needs.
Wendy Brink- den Nieuwenboer, Senior Manager at Deloitte Regulatory Risk and a specialist on Duty of Care and Customer Centricity recognizes this in practice:
“Too often firms handle the requirements regarding Customer Centricity in a reactive manner. Most of the time the biggest improvements are made due to regulatory pressure, often despite appeals from their own Compliance and Legal departments. The result is that often the focus is on solving the issues detected by supervisors instead of also looking at the actual root causes of these issues. The symptoms are treated, but not the disease.” Wendy continues “If you really want a firm that manages all the requirements on Customer Centricity in an adequate manner, you need to ensure that every relevant aspect of your organization is aimed at that goal.”
Therefore, it is always important to look at the bigger picture and make sure every relevant part of the organization is in line with Customer Centricity and reinforces one another. This includes elements such as:
- Customer Centric Vision
It all starts with a vision on Customer Centricity. A firm should formulate basic principles in which it embodies its vision of Customer Centricity and captures these principles in a written statement or policy. However, simply putting them on paper is not enough. These principles need to be actively communicated throughout the organization and serve as the basis for other policies, procedures, decisions, etcetera. In this form, it can serve as an anchor point for employees as well as management which helps to ensure a transparent, consistent and explainable approach on Duty of Care.
A customer centric culture is key. The right culture can be established via more tangible factors like rewards and promotion. Is delivering quality or a customer-centric attitude, for instance, something that is actually and visibly rewarded or is the system of appraisal still built mainly on commercial performance? But also: is top management making choices that are objectively in the best interest of the customer? Do they actually “walk the walk” and not only “talk the talk” when it comes to customer centricity. Next, it is also very important to look at the more soft aspects such as how often Customer Centricity is put on the agenda in meetings and for what kind of behaviour do employees get a “pat on the back”? As an organization it is important to be aware of the cultural dimensions and constantly challenge yourself on these topics.
- Product Approval and Review Process
To make sure you offer products that are in the best interest of the client there should be an adequate Product Approval and Review Process (PARP) in place. However, this process only works if the organization has the ability to be self-critical and has the skills and knowledge to evaluate products in the light of Customer Centricity. Are you sure that your organization is a safe environment where employees from different disciplines and function levels are able to speak freely, are open for, and ask, critical questions and dare to challenge one another? Via an adequate PARP, it should become routine that your employees dare to ask challenging questions. For instance, whether it is objectively explainable that your product has a higher price, or is more complicated than similar products in the market. It also requires assessing whether the products you are offering add value for your clients. The design of the PARP is one thing, a successful execution is another.
“Within firms that offer Consumer Credit, there are many basic elements that have an effect on the extent to which Customer Centricity is adequately shaped and carried out” Wendy Brink-den Nieuwenboer says. “If you handle these elements correctly you can prevent Duty of Care issues. But be aware of pitfalls. From our experience in the Consumer Credit market, we can conclude that a lot of firms assume that they have organised everything adequately. What they often do not realize is that they are, as a financial institution, acting with a certain bias that is hard to break. The fact that employees and management have financial knowledge, years of experience in their respective field and are under different internal and external pressures makes it very difficult to objectively assess their products, services and way of working from a customer centric perspective. Employees (but also management) often reason from the bank’s perspective. This is a recurring blind spot in the financial industry and should not be underestimated. Getting objective and external perspectives on the functioning of your organization can help you mitigate these blind spots”.
How can we help?
Duty of Care is one of the major regulatory topics for financial institutions. At Deloitte, we understand that Duty of Care issues rarely require a quick fix, nor a one-size-fits-all-approach. Our dedicated team of consultants have been supporting our clients with a wide range of individual solutions and strategic advice in order to become and stay compliant with the requirements of the financial supervisors as well as societal expectations. Based on our experience and our knowledge we can assist you with all sorts of different Duty of Care challenges regarding Consumer Credit.
Would you like to know more about our services on Consumer Credit? Please contact Wendy Brink- den Nieuwenboer, Martin Eleveld or Christiaan Visser via the contact details below.