One year after the Consumer Duty came into effect, many payments and e-money firms are continuing implementation and improvement initiatives.

While many firms with direct engagement and impact on customers have found interpreting the Duty relatively straightforward, those at other points in the distribution chain are still struggling with some of its aspects.

Firms that play a less direct role with consumers still have a major impact and an important part to play in customer journeys, giving plenty to consider from the perspective of the Duty.

Assessing the extent to which a good outcome for consumers has been influenced by a firm’s involvement in the distribution chain is one of the more challenging pieces of work to undertake. Yet with the right approach, you can get a better understanding of your impact on the end customer – with the ability to demonstrably have a positive influence on customer outcomes.

Materiality of services a challenge

One difficulty many face is around the materiality of services to consumer outcomes, particularly the influence a merchant acquirer has over the value chain. The issue stems from how fees are considered as part of the price and fair value outcome. Where these fees are not directly borne by the consumer, they can still have an impact on the overall pricing of the products they are purchasing.

For example, some firms question whether interchange fees will have an indirect impact the price and value outcome by increasing the merchant’s overheads that are, in turn, passed on to the end consumer through the products / services purchased.

Judgements around the materiality of influence on consumer outcomes relating to the product and service also crop up with the authentication methods used during an online card payment journey.

For example, merchant acquirers should be asking whether the methods offered for the One Time Passcodes (OTP) are appropriate for a certain customer (or groups of customers). Would offering an OTP via SMS result in a good outcome for customers living in an area where mobile reception is known to be poor or unavailable? How much of an impact does a merchant acquirer have within that journey, even though this could result in a failed transaction, and when it is offering another or multiple options for authentication more suitable?

For these instances, some insights have previously been given by the FCA in its payments and e-money Consumer Duty webinar. The FCA suggests looking at how much involvement a merchant acquirer has in areas such as designing regulated products and services, price setting, customer communications, and customer support.

Ultimately, as the FCA points out, the extent to which a merchant acquirer could materially influence customer outcomes will depend on their business model.

Fraud prevention measures

Payment firms offering payment transactions online, should consider whether the steps in the customer journey are appropriate, proportionate, and include suitable risk warnings targeted at the riskier transactions rather than adding unnecessary delays or friction to the journey.

Unjustified risk warnings could negatively impact a customer, delaying the transaction and possibly resulting in the abandoning of the transaction altogether.

There continue to be arguments over the appropriate level of friction around these fraud warnings. It’s generally accepted that, in Open Banking journeys, this should be no more than the friction encountered in a regular online payment transaction.

Although the FCA is trying not to be too prescriptive when setting out what good looks like, clarity on areas such as these would be beneficial. It would avoid firms applying wildly differing interpretations, which could confuse consumers with different approaches to fraud prevention and not be in the spirit of the Duty.

By considering the information a customer needs to understand and make informed decisions about the products and services being offered, an appropriately balanced approach can be achieved.

Anti-money laundering

Anti-money laundering (AML) also continues to be a hot topic for the regulator. Consider whether your AML detection and prevention measures are appropriate and dealing with any accounts under suspicion of financial crime or money laundering as quickly as possible.

This is to ensure that any legitimate accounts or transactions aren’t unfairly impacted for an extended period. It’s important to find the right balance between offering a customer protection without being highly disruptive to their day-to-day life.

Considerations

Under a less prescriptive and more principles- and outcomes-based regime, such as the Consumer Duty, judgements around how to react to the regime lie with the firm. In the case of the Duty, your response and implementation must be scrutinised appropriately by an appointed Consumer Duty champion who has sufficient seniority to carry out this role.

Some key tips when considering your response to the Duty are to:

1. Map out your position in the value chain and what influence your service has on consumer outcomes;
2. Document clearly where you believe that your service doesn’t have a material influence on consumer outcomes;
3. Ensure that the Consumer Duty champion and senior management can challenge and be challenged themselves on decisions around excluding a service based on materiality.

Although nothing has been confirmed by the FCA yet, it’s likely that some thematic feedback on firm implementation of the Consumer Duty in the payments sector is on the horizon.