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In the wake of events such as COVID-19, which truly underscored the need for industries across the board to adapt their approach in all their business interactions, it is no surprise that the FCA places such importance on improving the way UK firms interact with their vulnerable customers.

As much as there were examples of good practice, there were several areas of concern during these periods of how businesses were addressing the ‘spectrum of vulnerability’ in their products and services. With the Financial Lives 2020 coronavirus panel survey showing an increase of 7% in UK adults displaying a characteristic of vulnerability between February and October 2020, it became even more apparent that the FCA’s February 2021 guidance on Vulnerable Customers was a vital document for the review of all businesses falling under FCA supervision.

At Thistle Initiatives, our Payment Services team supports a wide variety of firms within the sector that are eager to implement the ensured protection of vulnerable customers in their day-to-day business, and are soon met with an often-challenging consideration – how do we identify the needs of a customer that distinguishes them as a ‘vulnerable customer’?

The FCA defines vulnerability as a state where customers are particularly inclined to harm, especially when businesses have not established It is essential that firms firstly recognise that there are a diverse range of situations and circumstances through which a customer can be identified as vulnerable – relating back to the ‘spectrum of vulnerability’ discussed earlier on, where all customers are susceptible to becoming vulnerable at any time. This can be understood through the four ‘drivers of vulnerability’ that the FCA highlighted, all of which are likely to be overlapping for the majority of vulnerable customers.

Understanding Vulnerability Drivers

Vulnerability Driver 1: Health

Though it may appear straightforward to identify a vulnerable customer to support by visible physical disability, other considerations must be taken into account – for example, addiction, mental health conditions, or long-term illness – that may not be so visibly identifiable but will equally have a role in determining their ability to engage with financial services.

Vulnerability Driver 2: Life Events

The change in conditions of someone - whether that be financially (e.g. retirement or income shock) or simply emotionally (e.g. bereavement, the loss of relationships or the gaining of caring responsibility) – can quickly redefine how a certain product or service is received by them. Especially with emotional experiences, such as income shock, we tend to see the overlap between life event changes and mental health changes that are both key drivers to vulnerability.

Vulnerability Driver 3: Resilience

The ability to buy into a product or service will always need to be considered from the perspective of a customer’s resilience – do they have sufficient income and savings to tolerate risk, or are they endangered by factors such as irregular income, excess indebtedness and even lack of emotional resilience? Linking back to the concept of overlapping, it will be these areas of reduced resilience that could dramatically increase the impact of a ‘life event’.

Vulnerability Driver 4: Capability

Though ‘vulnerability’ under this factor may be narrowly preconceived as learning difficulties, other access barriers that warrant to be recognised in customers include digital skills, English language skills, or lack of exposure in terms of knowledge and confidence in managing finances that could hinder engagement with the product or service. Age, a running theme overlapping across the drivers, can contribute to several of these barriers and must be considered accordingly.

Understanding The Vulnerability Spectrum: Next Steps

• The consideration of the ‘spectrum of vulnerability’ marks only the first step in the ongoing action plan that a payment services firm must incorporate into their customer interactions.
• It is from this process that firms can identify who requires additional support to ensure their products and services cater to the needs of consumers at the greatest risk of harm, and who is more susceptible to behavioural biases.
• For this reason, firms will be responsible – and held accountable by the regulator – to understand what characteristics of vulnerability are associated with the client profiles in their target market.

With this introduction into Thistle’s work supporting firms in the payment services sector to adapt customer-centred approaches to align with regulatory expectations, we are looking forward to exploring how your firm can work proactively to prevent – not perpetuate – the impact of vulnerabilities on an equal customer experience.

Written by Rohan Chakraborty, Senior Associate in our Payment Services team.