Preventing a vulnerability crisis: a data-driven response

Referring to the FCA’s recent guidance consultation, we explore how FS firms can ensure that the UK’s vulnerable consumers are protected and supported.
Published on
September 16, 2020
Finance & Fintech

During the nation’s lockdown, the Financial Conduct Authority (FCA) issued the ‘Guidance Consultation and feedback statement: Guidance for firms on the fair treatment of vulnerable customers’, an assertive call to financial services to consider the fair treatment of vulnerable customers.

The 109-page document looked to change the behaviour of financial services firms and improve the way they identify and engage with customers who fall into the vulnerable category.

The research conducted within the paper points towards 24m in the UK who display one or more “characteristics of vulnerability”, an alarming statistic that is growing at speed. 

The guidance is delivered 14 years after the Financial Services Authority (FSA), the FCA’s predecessor, developed a set of outcomes that set the baseline of expectation for how firms should treat consumers.

The Coronavirus pandemic has produced devastating effects for consumers so far, putting two of these outcomes at serious risk of being widely compromised:

1. Consumers can be confident they are dealing with firms where the fair treatment of customers is central to the corporate culture.

I fear that during the ‘coronavirus storm’, firms, consciously or unconsciously, edge the interest of their business, employees, and assets, before that of their customers. This poses a huge threat to consumers, their wellbeing, and their ability to navigate through these turbulent times.

2. Where consumers receive advice, the advice is suitable and takes account of their circumstances

For financial services firms to provide adequate advice to consumers, they have traditionally relied on Credit Reference Agency (CRA) data to provide an overview of an individual’s circumstances, but my concern is in the accuracy of that groundwork.

It is not the first time that we have questioned the industries reliance on CRAs - and for good reason. When any business accesses the portfolio of information that an agency holds on an individual, the information is often outdated as far back as six months. To be able to deliver the level of advice that is required from financial services firms, there needs to be something more.

I believe leveraging bank data is the only technology that can help us unravel the situation we find ourselves in; the only technology that can positively serve businesses and their most vulnerable customers, simultaneously.

To adequately serve those in the public who need access to financial services for relief, we need to better understand them, their circumstances, troubles, and financial profile. Furthermore, we need to understand who they are today – not six months ago.

Therefore, in this article, I will be picking apart the areas of vulnerability the FCA have highlighted and illustrating how firms can ensure these customers are supported by leveraging their financial data.

Who are vulnerable customers?

You may be thinking: the FCA’s core responsibility has always been to  ensure consumers have an appropriate degree of protection. But I would like to focus on where the increased risk is, how firms can address this, and start to solve some of these key challenges to protect consumers.

The FCA have identified 4 key drivers that can potentially increase a customer’s level of vulnerability that are amplified by the Coronavirus pandemic:

  • Health: health conditions or illnesses that affect the ability to carry out day-to-day tasks
  • Life events: major life events such as bereavement, job loss or relationship breakdown
  • Resilience: low ability to withstand emotional or financial shocks
  • Capability: low knowledge of financial matters or low confidence in managing money (financial capability). Low capability in other relevant areas such as literacy or digital skills

The research concludes that an alarming 46% of UK adults fall in to at least one of the categories, validating the FCA’s concern for vulnerable customers across the nation.


The health risks associated with the pandemic are obvious but, unfortunately, prevalent. With the introduction of social distancing measures, what was once a simple task of visiting a branch, or any financial service, is no longer so.

What I am more concerned with, however, is the mental health issues associated with the current pandemic. One in six people (17%) have felt hopeless in the previous two weeks, and an even more concerning statistic, the proportion of people who have experienced suicidal thoughts or feelings in the previous two weeks was increased by ten percent. (Mental Health Foundation, July 2020)

Financial services firms need not only acknowledge, but also act upon these statistics. Poor mental health makes earning and managing money much more difficult, and poor management further increases mental health problems. (Mind, 2020)

Through leveraging customer financial data, and partnering with bank data companies, financial services firms can identify financial vulnerability indicators at the earliest possible stage.

Life Events

With 23% of workers in the UK enrolled in the nationwide furlough scheme and employment rates on the rise, the demand for short term loans is growing.

In the presence of what the FCA defines as ‘major life events’, the benefits of utilising bank data could not be stronger.

Financial services firms, especially lenders, need a real-time understanding of their customers to make adequate and responsible decisions when distributing relief loans. Consumers all over the UK are in urgent need of financial support, so lenders must find a way to efficiently assess affordability to make confident underwriting decisions and cope with the demand surge.

Open Banking provides real-time access to bank account information and subsequently a detailed view of a customer’s financial profile, health, and affordability.

Underwriters can no longer rely on Credit Reference Agency data to build the complex financial profiles they require – as previously mentioned, this data is usually irreflective of an individual’s current circumstance. Making credit decisions based on historical data is becoming too risky for underwriters, and it could be argued, increasingly irresponsible.

Bank data is the only viable way of protecting vulnerable consumers in an era where negative life events are highly likely to take place.


For those who struggle in scenarios where emotional and financial shock are present, these times are troubling.

Many of the major financial services firms have lagged in the race to digital transformation, and the absence of CX driven products is becoming clearer than ever before.

Many of the technologies and systems used to obtain an aggregated view of a customer’s financial profile are fragile and largely outdated. This is seriously hindering their ability to deliver distribute support, and ultimately, necessary relief funds.

Vulnerable consumers are more likely to be unbanked and less likely than average to hold any form of savings, insurance or protection, pension, or investments.

– (The FCA in Guidance for firms on the fair treatment of vulnerable customers, July 2020)

The risk in this scenario is what the FCA refers to as ‘behavioural biases’. The phrase refers to customers in times of stress who display symptoms of aversion to loss or risk-taking tendencies. Thus, impeding a customer’s ability to make choices that are in their best interests.

Vulnerable consumers may have a ‘scarcity mindset’, which can lead them to focus on certain factors at the expense of others, resulting in the purchase of unsuitable products. In the absence of a dedicated consideration of vulnerability, even business practices that are consistent with a well-functioning market could risk leaving vulnerable consumers disproportionately worse off.

(The FCA in Guidance for firms on the fair treatment of vulnerable customers, July 2020)

Firms need to consider this advice at every stage of the credit risk lifecycle. To make adequate underwriting decisions in the onboarding process, an underwriter needs to be able to understand what an applicant can afford to repay based on their current income and expenditure, a figure that can prove to be inaccurate when left to customer self-assertion.

Introducing bank data into this process streamlines the whole process for the lender, but also ensures the customers gets the adequate care that they need.

The risks are similar at the tail end of the cycle, where lenders have consistently struggled to solve the collections and recoveries conundrum.

Leveraging bank data removes much of the stress and uncertainty for customers who have entered the collection process. The practice provides agents with all the data required to build a comprehensive view of discretionary and non-discretionary spending, income and expenditure, and any other loan commitments. This information can be delivered to a collection’s agent in seconds by connecting their bank account through an Open Banking API.

From start to finish, the credit risk lifecycle presents heightened risks to vulnerable customers this year. It takes little effort to implement bank data throughout this cycle, and it ensures financial services firms take care of their customers and remove the behavioural bias that FCA highlight as a significant concern.


The FCA have called upon firms to spot vulnerability and deliver the correct service that responds flexibly to the needs of their customers. Interestingly, the guidance states that firms should be mindful of vulnerable customers during the design process of financial products and services. Further, the guidance stresses the importance of this in the absence of front-line staff, and highlights the opportunity to use data and analytics to help simplify the journey for customers with low digital literacy.

Firms, particularly those that do not rely significantly on frontline staff in customer interactions (for example predominantly digital customer journeys), may find data particularly useful to understand their customer base and to identify characteristics of vulnerability in individual customers so they can offer support proactively

(The FCA in Guidance for firms on the fair treatment of vulnerable customers, July 2020)

Almost as if directly speaking to the Open Banking FinTechs, the FCA asks firms to provide a ‘warm handover’ to third parties when there is an opportunity for customers to benefit from support or assistance from a different company/provider. This should only be at the consent of the customer, a practice at the very heart of the Open Banking connect process.

We’ve written on this very topic many times throughout our FinTech blog, but to reiterate, Open Banking really does make the process of securely sharing your data a frictionless experience. For those who struggle with digital literacy, this is the easiest way to present the information needed to a financial services firm, whether it be during onboarding, re-assessment, or at the collections end of the cycle.

In reference to capability, bank data provides a wealth of useful information for customers who struggle with financial management and planning. Indeed, Personal Finance Management was one of the earliest use cases that the Open Banking legislation was modelled on. Despite the bank data technology blossoming into one of the most valuable tools for underwriters, transaction enrichment has always been an effective way of presenting information to a customer via financial management or budgeting apps.


Mental health and physical health concerns will interfere with most of us in some form throughout 2020. For groups of people that are already vulnerable, the fear of unpredictable life events and a poor ability to withstand financial shock can drive a ‘scarcity mindset’. The guidance continually references digital technology and innovation and seems to put pressure on financial services firms to take a hard look at the existing processes and assess whether they provide adequate care to vulnerable groups.

The FCA clearly recognise the industry wide demand for innovation to prevent further crisis.

As a final thought, I’d like to look at one final quote from the FCA Guidance Consultation:

All consumers are at risk of becoming vulnerable, particularly if they display one or more characteristics of vulnerability.

I call for all of us who work in financial services, to design products, implement improved customer journeys, and make core business decisions, as if you were in the shoes of the most vulnerable.

I urge you to truly consider using bank data to protect and serve your customers, many of whom are navigating the most vulnerable period of their financial lives.

The consultation period is 2 months and the deadline for responses to this Guidance consultation is 30 September 2020. You can respond to this consultation by answering the questions by using the FCA’s online response form or by emailing your response to

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