消費者の義務：適正価格の商品管理への影響

Around the World in 80 Days. Apparently, a few years after this famous book was published, two rival female reporters set off to prove that they could travel around more quickly that Jules Verne’s hero Phileas Fogg. One by steam ship and one by train. Travelling alone, both women managed to beat the fictional benchmark; a feat which has been turned into the novel Eighty Days.

Inspirational as this anecdote is, this was the lead in provided this week by the UK’s Financial Conduct Authority (FCA) to remind banks that they have around 80 days to go before the 31^st July deadline for its Consumer Duty requirements. The logic being that if two young women in the 19^th Century managed to conquer the globe in under 80 days, then UK financial institutions in the 21^st Century should be able to do so similarly with the final stages of Consumer Duty.

Now while banks might be tempted to question whether the analogy fully holds outside of the timeline, perhaps the more important take out was that this was also introduction for the FCA to publish its review of fair value frameworks, one the four key outcome requirements of Consumer Duty, and the one which the FCA found that firms have been finding most challenging.

The key thrust of this requirement is that firms need to ensure that the price the customer pays for a product or service is reasonable compared to the overall benefits that a customer can expect to receive. As part of this, firms have had to undertake fair value assessments to demonstrate pricing is reasonable, which in turn required development of evaluation frameworks. Perhaps unsurprisingly, given this was the FCA’s first industry review, feedback was mixed with the FCA providing plenty of recommendations for further improvement before the deadline. While many of these relate to broader methodology and approach, from a banking platform perspective it is worth considering the key points that relate to product pricing and product management.

Fees must be fair, transparent, and proportionate

One of the key criteria the FCA used to evaluate frameworks was how firms assess value, particularly in including both financial and non-financial costs and benefits to the customers. An important point here is that firms need to consider outcomes for different groups of customers, not rely on broad averages. The FCA’s concern is that the latter could mask situations where certain types of customers, such as those on low incomes or in vulnerable circumstances, receive poor value. For example, if such groups as are unable to benefit from important product features or are more likely to pay charges (e.g. late payment fees). Firms need to provide fee transparency, but also ensure fees are fair and proportionate - do exit fees reflect actual costs or do they unreasonably discourage consumers from switching accounts or providers.

Fees also must be appropriate to the customer segment and drive fair profitability

Similarly, firms need to assess whether fees are appropriate to the customer segment. Here the FCA highlighted whether top-up charges or redemption fees for electronic money accounts are appropriate for the needs of vulnerable customers that often use such products. Significantly, firms are expected to challenge themselves not just on fees per se, but whether overall product profitability is justifiable. A high profit margin on a certain product or from a particular customer segment could be a sign that the customer is not getting fair value. A historical example here is payment protection insurance, which before its demise often had claims ratios in the 20% range, well below ratios commonly seen for general insurance products. Here, it is important that firms can assess individual product profitability rather than rely overall firm margins as a fair value indicator.

Alongside this, firms need to consider if, and why, different customer segments might pay higher prices and drive higher margin. For example, whether new business customers are offered preferential rates over back book customers. While price and value outcomes rules don’t require firms to charge customers the same amount or obtain the same profit per customer, firms should consider whether systemic product cross-subsidization between different segments could impact fair value delivered, particularly in the case that vulnerable or low-income customers are driving disproportionate levels of income (such as previously was the case with overdraft fees).

Costs and benefits should be assessed over the lifetime of product with effective proactive communication and access

Firms should not only assess upfront fees but consider both likely costs and benefits over the lifetime of the product. This should include consideration of ongoing benefits, so pricing structures that offer attractive teaser rates, before declining to below market rates after offer periods (such as saving accounts offers) need careful customer and product management. This is both around disclosure and effective customer communication around pricing changes (such as notifying customers when offer periods end), but with an onus to communicate to customers throughout the lifetime of product as to whether the product continues to provide value.

This should also include consideration of non-financial costs, such as time and effort for a customer to be able to make a decision, as well similar ease in being able to amend, cancel, or switch a product. Many firms have been focused recently on driving a strong, seamless digital origination experience for customers, but such practices should also be applied for customers to be able to change or cancel. Digital origination on one side, but with a requirement for customer to call a contact center to cancel (particularly if long wait times or hard to find contact details) could be problematic here.

Fair value evaluation for product bundles needs careful consideration

Product bundles also represent challenges for assessing fair value. Firms need to have clear consideration of where bundling does, or does not, provide value to a particular customer, and pricing needs careful consideration as to how to reflect value provided. For example, pricing should rarely be higher than sum of constituent parts unless there are clear convenience benefits from products being packaged together. As discussed in A Netflix pricing model for banks should be more than a product bundle, firms will need to consider how bundles can be tailored by customers to ensure value is provided or be very careful how they define eligibility and assess suitability.

Product and pricing management needs to incorporate fair value assessment at design stage

From a banking platform perspective, longer-term banks should look to incorporate fair value assessment into underlying product design and management, rather than run as a separate compliance exercise, i.e., it should be considered as part of the design process in the same way bank’s assess expected profitability and risk in product management. While initial Consumer Duty requirements are for new products, demands will extend to existing products a year on from this year’s deadline, albeit with slightly different requirements for closed book and open products.

In the short-term, the regulator is focus on ensuring that firms understand what data is required to undertake fair value assessment, and that firms have plans in place to remediate any data gaps (such as ability to assess fair value across different groups of consumers). In the longer term, it is likely to get more interested in the assessment approaches used, with advanced analytics, machine learning, and artificial intelligence likely to be valuable to institutions in addressing the complexities of assessing fair value across multiple scenarios and segments. However, given this remains regulatory driven, firms must ensure they maintain explainability, rather than just use black-box type optimization.