Customer number is king? The case for KPI assurance

As an increasing number of fintechs battle for space in our wallets, alternative performance measures¹ and key performance indicators² enable these fast-growing companies to tell their stories in a way that metrics used by more established banks and payment businesses can’t do as easily.

This is important at a challenging time for companies, amidst high competition, a dynamic regulatory environment and as customers grapple with the continuing cost of living crisis. In its response to the consultation on strengthening the UK’s audit, corporate reporting and corporate governance systems, the Government also recognises “considerable investor and other interest” in reporting on KPIs and APMs and proposes that they could be considered for inclusion in a company’s Audit and Assurance Policy (AAP).

Customer numbers and growth are front and centre of information presented to investors and potential investors, whether as part of the Annual Report, website or social media posts. And for some companies it’s retail investors and crowd funders, not just venture capitalists or institutional investors, that they’re looking to appeal to.

When seeking to build trust, the use of stats like “a customer of x bank has 30 friends using the bank” can be powerful, and overall customer numbers are presented as the key measure of a successful year.

Clarity and consistency

But what is a customer? Someone who has opened an account and not used it, or uses it very occasionally? Does a joint account count as one customer, or two? Even for the most successful fintechs, “customers” who use them as their “main” (another classification which can be open to interpretation) account, is less than 1 in 5 who have an account with that bank. There are many judgements folded into these metrics and indicators, and companies can take different approaches as definitions and methodologies can be inconsistent and highly subjective. Companies may also change their approach over time. Customer growth drives investment, and more growth.  Companies are increasingly focusing on how they give confidence in these KPIs.

Larger banks also lead with customer information, and the role for assurance is evolving. As well as customer numbers, this can include statistics about social responsibility, such as financial capability efforts and how they work with customers on fraud prevention.  Presented in the front half of the annual report and on the website, these figures are not audited. Some of these metrics are subject to assurance, but some are not.

This demonstrates the mix of practice around the use of assurance, and potential for ambiguity, even within the same page of an annual report or section of a webpage. For example, a reported capital metric might be specifically labelled as “unaudited” when presented in proximity to audited financial information, whereas customer numbers are not routinely labelled as such, leaving it for the reader to infer whether different pieces of information presented alongside each other attract the same degree of confidence. An Audit and Assurance Policy can help users understand these differences, and how companies are confident in their published information.
 

Metrics that matter 

Even “simple” metrics like customer numbers, transactions and app downloads can be arrived at in a variety of ways. For example, if I have an iPad, a work phone and a personal phone, I might account for 3 app downloads, but only one account/customer. In areas like buy-now-pay-later, APMs and KPIs like app user purchases vs non app user purchases, “active” consumers and ranking in app store downloads for shopping apps become measures of success, telling a story about how consumer behaviour is changing to favour this method of payment. Whilst an app store ranking should be straightforward to understand and verify (a snapshot at a point in time), defining an active consumer is harder. Is it clothes shopping after each payday? Or would an annual wardrobe refresh still qualify you as an active consumer?
 

The role for Assurance 

These numbers are clearly linked to strategic objectives for fast growing fintech companies, such as increasing the proportion of primary [main] account customers, customer growth, and increasing transaction volumes. If they make the case for investment and incentivise management alongside traditional financial measures, they should hold the same degree of confidence and be considered as part of the AAP.

A clearly constructed AAP, focusing on principle risks and resilience, and providing a clear understanding of where assurance has been provided and by who (with independent, standards-based assurance providing the highest level of confidence) can help to ensure that the story told through APMs and KPIs is robust and better understood by customers, investors, and other stakeholders. Companies need to come to a view on how they are going to give confidence in these metrics. For strategically important, headline indicators, companies should consider the value of independent assurance.

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End notes

¹APMs: a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework
(https://www.esma.europa.eu/press-news/esma-news/esma-publishes-new-qa-alternative-performance-measures-guidelines-0)

²KPIs: a quantifiable measures that gauge a company's performance against a set of targets, objectives, or industry peers