The full interview with Kevin Still from Demsa. Here Kevin talks about the impact of the new FCA customer duty consultation and what this going to mean for businesses and customers. The rubber is going to hit the road, with evidencing new behavior and culture going to be critical.
Kevin also provides his perspectives on Debt Advice and in particular the new ruling on debt packagers too.
Find out more about Demsa-> Here.Interview Transcript
So hi, everyone. I’m here with Kevin still today. He’s a director at the debt manager Standards Association. So Kevin, thanks very much for joining me today. I really appreciate you making the time.
Chris, really nice to see you today, I think for sure, let’s call a stem. So today, so I think that may be helpful going forward,
I suppose what have you seen? And so you’ve got huge amounts of experience, particularly the debt advisor sector, you know, working with in the collections industry, what have you seen over the last, like 12 or 12 or 18 months with all the changes that have been going on? I know, You’ve been at the heart of some of that particular things like public sector and debt advice. What have you seen that the pandemic sort of impact across the customer base? Really,
I’d say, first and foremost, I think what it’s done is brought all the rhetoric where you’ve been hearing for several years to live, particularly in terms of making sure that firms, particularly regulated firms, now actually put some form of evidence in place and what turned in relation to treat customers fairly. So, you know, everybody was hit with the same challenge in and around March 2020, moving their staff to work from home, expecting that there was going to be a much bigger immediate crisis than then as it turned out, with a chance to schemes and the FCA bringing in forbearance measures. But nonetheless, it really brought out, in my opinion, the best in the debt advice sector, the debt collection sector, more widely within the creditor sector, in looking out, not only from their own workplace well being perspective, but also in how you treated customers differently. And I think there’s plenty of evidence in that, including the public sector.
And so do you think do you think we overreacted? Through that in terms of the the the measures that were put place in terms of like the prediction of what was going to happen in terms of arrears and financial difficulties? Or do you think it was just an is just kind of delayed now and we’re gonna see something for like, three, four months time?
I don’t think there’s any element there that people overreacted, because who knew what was going to go on? Particularly in terms of what the chancellor could look at in terms of some of the forbearance schemes which would mammoth in the end? I think, yeah, the predictions around when the spike in particular demand for debt advice was going to take place, you know, was very difficult to do. And when you relate it to, in particular, the Financial Conduct Authority, the money and Pension Service, we all got it wrong. And we’re still at a stage now predicting, there’s going to be a 60% growth in demand. But we don’t know when it’s going to happen. And but it’s likely to be more tapered in than it was originally when we were going to suddenly see fall off a cliff, once the forbearance schemes ended. So I think firms have had to always plan around the fact that there could be other factors come into play. And one of the most obvious ones, Chris, you’ve seen is who foresaw properly that the situation in the energy market, obviously, the market should have done, but we’ve now got inflation, just topping 4% likely to still go upwards. And that perfect storm is beginning to take place going into the next financial year, when many consumers are going to be hit by a multitude of either increases, or deductions from their take home pay with things like National Insurance contributions going up? Yeah, and
you sort of start starting to see that in terms of like, as far as income and expenditures, affordability, and that all that’s got to get factored in. Now, in some some cases, I heard where people’s energy costs were almost like doubling when they sort of like they had a great deal. And then they got on to a standard tariff with with a new supplier.
It’s a double whammy there, isn’t it really, I mean, I feel for some of the energy firms that are inheriting 2 million customers at the moment, you wouldn’t want to inherit a customer where it costs you more to service that customer than you get in income. So you know, I understand their position that they want to get people on the right tariff. But equally well, I want to make sure that when they’re on boarded, that they know as much about that customer when they come on board. So wearing my device hat, you know, and the work we do in the vulnerability sector, I just feel it is a best practice to screen against things like the vulnerability registration service, and some of the other priority registers to make sure you know as much about your customer as you can do. And that really is what we’ve seen that drum beaten the whole way through COVID Get to know your customers better. But if that’s enforced, you know, and these guys haven’t created this hiatus, and you’ve got to go off and be the lifeboat for 500,000 customers, but come into it with your eyes open and speak to your regulator about what forbearance they can offer. You know, she can’t do this instantaneously. And two or three of the providers have already put their hands up and said, I can’t do this overnight. I need time and
the FCA I know to go back to financial services and the FCA has been making a big play around outcomes and getting good outcomes for for customers. Making sure that that’s being done evidenced as well, I mean, how much do you think that’s going to increase? I know, there’s some recent customer duty elements that came out recently. I mean, what’s the drumbeat seem like they’ve been increasing, and they’re gonna continue doing crease what’s, what’s your kind of view on that.
So the consumer duty in my view is going to be immense. So you’ve got a lot of firms at the moment trying to get under the skin of what it actually means. But the outcome focus is actually about really good record keeping, tracking it back to the origin of when you’ve made board level decisions. So you know, without a shadow of a doubt, the Financial Conduct Authority, the approach that I’ve seen and witnessed since 2014, is, look, we’re going to send out this consultation paper, give you a strong indication of what our expectations are, we may even issue another consultation paper, and this is what happened on vulnerability. And then we’re going to implement it as they did in February 2021. But there’s no time to embed now, because we’ve given you 18 months notice of what our intent is. And to me, the consumer duty is going to be the same. But for many firms, certainly those with higher risk permissions, actually, between January and July, may not be enough time to do it, you need to be ahead of the game. And lienau is following your tail around the regulator is not the way to do things, you need to have a five year horizon. And you need to be planning around some of the key factors that are going to shape your roadmap, your culture. So and sometimes that’s difficult, because the regulatory intervention can mean that actually all of this investment can be wasted. In some instances, you’ve seen in some sectors, the intervention has essentially shut the sector down. But for the firm’s that, you know, well administered well funded, operational resilience, financial resilience, they’re key factors, they need to be understanding what good looks like,
we talked a lot about frictionless journeys, but sometimes it’s worth having some friction in there, particularly if you want to check something with the with the customer as well, such as the affordability or you know, whether the product right from those kind of things.
Yeah, I’m, again, I’ve done a recent white paper on financial education. And I think this is quite key in that you’ve got very distinct segments of customer segments between the people that do their own independent research, you know, checked with, which can often found out what the right thing is for them, you know, and even in our in buy, now pay later, they want to buy the product, try it before they pay for it, and similarly might have absolutely no return on their savings. And consequently, they know and use these services very effectively, versus people that may be far more impetuous. And what they want to do, they’ve looked at the brown and white goods they want to purchase. And they want the process to be as short as possible. And trying to explain and all the things that the regulator’s saying you should do to try and inform the customer in that process can be a very difficult process if your customer doesn’t really want to spend any time doing that. So you’ve got to think outside of the box in terms of the way you impart these messages in and that’s been a very common problem we found in the vise sector, the information sheets that sit within the process, are readily available. Whether they’re ever read or not, is another matter tends to be at the point of pain, that all becomes an crystallises. And I
suppose there’s almost a hypothetical discussion around, you know, how much do you sort of, you know, have the duty of care for the customer all the way through versus lift them to make their own decisions versus and where do you sort of draw the lines in between one and the other. And that’s
where I think not only vulnerability, but other forms of capability assessment come into play. So where I’m very interested in the moment from the point of view of FinTech pay tech and the like, there is some very interesting propositions in terms of how you differentiate customers, both in terms of their behaviour at any moment in time, and their paid behaviour more generally, and how you tailor then the customer journey to suit that. So if you have somebody who’s truly empowered, you actually take the friction out of the journey. If, however, you’re beginning to detect things that are not what you’re expecting, then you introduce a bit more friction, particularly when you’re getting involved in some of the higher risk type transactions or there is risk of consumer detriment whether that be indebtedness, fraud, or other you know, rising challenges that we’re beginning to see, you know, including things like identity theft, which may have much wider implications if you’ve spotted that the transaction is just not following the way you would expect it to be undertaken.
That focus on digital as well also comes data and with that comes evidencing and it feels like you know that the regulator’s very keen on evidencing I’ve heard you talk before around that and how important it’s going to be. And it’s almost like the symbiosis that seems to happen with with digital as well because you do recall Whatever you think, well, you should be recording everything. And if you’re not, then you sort of, it’s going to be a problem, because now now the evidence is is kind of expected is, is that kind of what you’re seeing as well?
I am. It’s quite interesting, Chris, when you look at this, I mean, the FCA to some extent is a bit a bit in a fishbowl. So their own pay in contract reforms in in the show, you know, the spotlight at the moment, their own data analytics team and the growth, you know, data driven regulator. So, to some extent, you know, I wouldn’t call it doing their own dirty laundry in public, what they’re doing is being more transparent around the challenges they’re facing. But you almost get a sense that, you know, you guys should be thinking about the same thing. Now, one of the things I’ve often seen, and I suppose I’ve had proven in the last two years, unless you really do embrace that single customer view, and the data and analytics piece, so you can track the whole customer journey, their intent from the outside, join all the omni channel bits together, you’re probably going to end up failing, at least partially failing some of your ambition. So building some of these correlation IDs in is really important. And building the identity and verification is critical. Because if you can’t actually track something back on a conversational user interface, virtual assistant or a web chat, and linking back to the other journeys on the telephone on by email, then inherently, when the customer calls in and said, I contacted you by this medium on this date, this one on here, my intent was still the same. And all of those should be wrapped in the same customer journey, in terms of, you know, did I achieve my outcome that I wanted to know HMRC that could be as simple as I’m going to change my tax code, a lot that should be done on a once and done basis, irrespective of the channel you come in. But you recognise other transactions are more complicated. And you may do several web chats, or telephone call and some other form of correspondence to complete that. But too many providers in the private and public sector still failing to join all that together. And it’s very infuriating both for the agent and the customer. If you’ve got almost a cyclops view that you can only see the bit, you can see some of the things, particularly as we’ve been very collections focus recently, you know, my view of CRM is you should be able to see the customer journey, irrespective of where they are in their lifecycle, particularly for those that have got Multi Product relationships, which now in reality has always been the goal of big banks and others to have multiple product relationships. It’s really disappointing that when you end up in arrears management, it feels like you’re back into a product silo, and all of your other relationships seem to got lost. So you can have the best areas management for the one product. But the fact is, you’re still paying your mortgage, you’re still paying a secure loan, you’re still paying for the HBO and your car, you’re still servicing your overdraft and all the other elements of it, but your credit card happens to be in arrears. And a lot of that comes to where you those fit in the overall priority scale. So I’m still counsel on the fact that what we should be saying is that single customer view approach, and particularly for long standing customers that they feel valued as a long standing customer,
could you think we have the vulnerability processes, right? I mean, there are stats that were quoted, you know, recently around for like, 50% of people were potentially vulnerable. You know, I think that was though some FCA stats that came out around that. I mean, is that is that too much? Is it? Is it not enough? Is it fair? Do we have the categorization right, even the term vulnerable?
Yeah, I think there’s a danger we, which we’ve heard at several of the events we participated in, you end up it ends up with polarity. And so you end up getting into the detail that we ended up getting back into this generic, generic vulnerability piece, rather than what people are vulnerable to, and then specifically, then how you avoid detriment within that. And a lot of the work that the FCA did in their categorization was looking at the characteristics of that, that firms ought to be able to identify, but particularly, what is the detriment that could result from this? So trying to batch everybody doesn’t help. Consumers don’t like to be batched. equally well, you’ve got to find this right balance between in disclosing information, how does it benefit me and my customer journey, and there’s an inherent distrust there, that’s got to be earned over time. So my view is is you know, historically, this used to be how does this affect your ability to manage money? And that’s still a key test in this process. But particularly, I think, you know, the likes of you Chris fetches Collin trends at the Money Advice trust have done a huge amount of work in some of the guidances they developed, particularly in our sector and the debt advice and debt collection. In the sector, in terms of how you use some of these drills effectively, to find what is the right engagement process with customers with their full participation, you know, often these things can apply at different stages of the journey. You know, so one of the things that was discussed about recently on the carrier side of it, where you might have somebody with something like Down syndrome, where they are relatively believing in anything people say, so the sales process could be the area that you most focus upon where that element of making sure you introduce friction, that something doesn’t happen. So somebody buys every warranty under the sun, because it seems like the right thing to do. But it may well be the further in the process you get, there’s more than enough capability there to have discussions around maybe early stage arrears management and the like. So breaking these things down and looking at it from a very much an outcome focus, what is the risk of detriment at different stages of that life stage, in the product or key. And to me, the FCA made a big point about that about effective product design. So one of the key elements of the consumer duty is not just looking at your onboarding process, your financial promotions, it’s every aspect of it afterwards. And what you’re seeing more and more now is actually the complaint process. What happens retrospectively, if down the line, somebody says, actually, that product was badly thought through, and we then have the claims management firms getting involved. And we start seeing, like we’ve seen with, you know, guarantor loans, and some of the home credit sector, the sector almost falling to bits years afterwards as a result of those interventions from claims management firms. And that’s part of the sort of, you know, if that had been thought about clearly at the beginning, but what was then the risk further down the line that we could actually end up having a very significant impact on the market that was actually highly used by millions of people
will be remissed, I suppose if we didn’t talk about the regulator, if we didn’t talk about some of the recent announcements around our debt packages, as an example. So I mean, and then there was there was that that was in the news, you know, recently. I mean, what’s what’s your kind of view on that in terms of like that the focus on that sector?
So I think I’ll start off by saying that none of this is new news. So as a trade body back at the time that we moved into the FCA regulations, Denso took a very strong position that they needed to be looking at transfer regulations from the ft to the FCA. Because at that time, U of T didn’t really have a concept of appointed reps in our sector. But the FCA his initial scrutiny was on firms that held client money debt solution providers to debt advice providers were given a relatively easy passage, typically five or six questions and you got your badge. And many of them then took on appointed reps. And he started to find some firms, you know, ended up with 35 appointed reps, fuelling what’s now called the IVIG factories. And this went on in parallel, whilst the rest of the debt solution sector was going through two thematic reviews, you know, in some may view cleaning its act up to become fit for purpose under that regulator. And that’s come out really in the consultation, what they’ve said is, is that these very small micro firms that feed cases, to the eye, VA factories, 90% of their income comes from my VA referrals. And in contrast, debt solution providers that provide holistic advice and a full range of Debt Solutions. It’s 1%. So it’s an enormous differential. Consequently, debt solution providers, my members are not brought into this particular consultation. Similarly, they’re not for profit providers, and a lot of this around the quality of advice, again, are probably going to be excluded on the basis. They provide holistic debt advice. And if you went off and asked any one of them, what’s the proportion of recommendations you made to edge one solution, then you’d be able to provide that very readily to the regulator to say, this is the work I do. Here’s my demographic, and here are the outcomes of the advice I’ve provided. So in my humble opinion, again, it’s taken seven years for the regulator to intervene. And to some extent, I actually think they’ve intervene because they haven’t seen fast enough action from their counterparts, insolvency service and the regulatory professional bodies so that the insolvency service side has just concluded a review, which is, you know, well overdue on what’s called CIT 3.1, which is the conduct of insolvency practitioners. In some many respects when they receive an inquiry, or a referral from a lead generator or debt packager, but I do get a sense of frustration from the FCA. That said, this has not happened fast enough. But the news is welcomed across the industry. Because what we want to see is high quality debt advise. The worry is in the numbers and stats, they’ve used 54,000 debt advice sessions by debt packages out of 1.7 million. And then you align that with the total number of IPOs per year, it suggests the majority of IVIG referrals come from these debt packages. And that’s a worry to me, because it suggests at the moment, if you take that away, our IVR is the wrong solution. Of course they’re not. It’s about looking and understanding that so statistics can be very misleading. And also quotes that clients should have gone into a debt relief holder, again, can be misleading. I know in June, they’ve changed the thresholds. And you know, the levels of debt can go up. But the key determinant here is disposable surplus income.
The other area that we’ve discussed before, Chris is the failure rates, and the failure rates on the so poorly advised solutions when you’ve got 40% failure rates in the first two years. That is terrible from a consumer detriment point of view. So there are a lot of KPIs that need to be visible, that are part and parcel of what you look at as a holistic debt solution provider, in terms of do you deliver the right outcomes. And that outcome may not necessarily be getting somebody debt free, because that may not be somebody’s objective, what I see a lot of is somebody coming out of COVID, I need some support for a year or two years. So the goal may be I need to bring my finances back under control to become manageable. And at some point, you may have done enough work to enable them to do that themselves. And that’s where self pure these digital portals become really important. So people and particularly the earlier you do that, and we’ve seen this a lot, a lot more creditors and are pushing customers, nudging them to go and use an independent consumer portal to share their data to look at truly where they are, to find out if there is a better remedy before they get into serious trouble. And it may be inevitable that you’re going to get there, but that they have that time to plan and look at what their objectives are. Is it to become debt free as quickly as possible? Do I think my situation will improve? And therefore should I be looking at a an informal solution versus a formal solution?
I mean, the focus on on on the debt package announcement? I mean, do you think that’s also opening up a bit of a, you know, almost like a new theme around sort of tightening around, you know, quality of debt advice more so than it is than it is already I mean, that’s sort of that takes like it did in the in the loan sector. So they sort of take the outliers and then gradually sort of move forward. Do you think do you think we’re going to see that as sort of like looking around the actual quality of the advice, more in depth
related. So there’s a review around the consumer credit Sourcebook, notably concave, which is around debt advice and administering debt management plans. But the debt solution providers have been through this, they went through this in thematic review, one, which started in 2014. And they went through that in thematic review two, which started in 2017. And the outcomes are those were produced, you know, back in last time around February 2019. So for many in this industry, it’s old news. And many have been banging a drum that says this should apply to the whole of the perimeter. And it’s no surprise that a lot of this, particularly in terms of where the FCA is repositioning yourself as a proactive regulator is around the perimeter, where historically it said I only touch to the things that sit inside Parag, somebody else has to touch it outside, we’re now beginning to see a lot more regulator, ombudsman and advertising standards, coordinated activity to look at the whole customer journey, which I 100% endorse, because it’s the only way you can do this.
And the pandemic has been quite interesting because it’s in certainly from it from a from a lending point of view. And from an affordability point, it sort of threw everything up in the air I kind of felt and some of the some of the people who could previously afford things suddenly we’re in we’re in financial difficulties, and it doesn’t fit all of the previous models might not have predicted that because it was such an unexpected event. The the focus from the regulator just keeps on is going to keep on increasing.
I think that it’s true. And I think they’ve given everybody that intent, I think staying ahead of the game. So I think some of the things you’ve talked about, which is you know, it’s been pigeonholed to some degree when you’re looking at some of these challenger credit reference agencies. How do you deal with lighter information? And you’re seeing people like HSBC with providing bank facilities to people that are finding it difficult to prove residency and the like. Now all these are great lessons learned. But we’ve got to go back to the majority of the population, probably needing to reinvent themselves, where transactional and behavioural data becomes the new norm, in addition to credit reference data, so that historic view may not be an accurate picture or reflection of the future. Yeah, I will always say Take heed having been a director of several credit reference agencies, that the data should always be looked at. But But similarly, the advent of open banking has meant that transactional data is likely to be very predictive. And the information that relates to particular behaviours, or different times needs to be reflected. And if it is transient in nature, how do you amend things, and that’s particularly true of ability, somebody doesn’t want to be badged if they’re coming out of crisis, but it shouldn’t affect them to manage their money going forward, I would hate to feel that that, you know, in any way inhibits them in getting on with their ability to manage their finances going in the future. So I think the new world is the right balance between, you know, suitable historic data, and some of that is, you know, relevant, no, particularly if there are serious areas from the past or somebody was asking in financial difficulty pre COVID. But I also think, the work that’s been done from the Challenger car raise, which is more around, you know, behaviour, transactions, shopping, basket analysis, spend analysis, is going to be more useful not just for youngsters, not just for those who got thin credit files, I think it’s gonna become the norm, the more the consumer participates in that and is willing to participate is key. But my big part this came out in yours in the vulnerability discussion, you’ve got to convince the consumers of the benefit of sharing that data, because most people still have that niggling doubt that said in supplying this is the some downstream consequence, this come back and bite me at some juncture here in me disclosing this data. So the right to be forgotten, still key. But you feel it even when you’re looking at some of the credit scoring systems that said, give your credit score a boost, but enough to give you a credit score of boost, you got to do this, you got to give me access to your bank account, there’s got to be a trade off here. And there will be inevitably situations that can given your access to your bank account, your credit score is going to go down. And I don’t often see the know the good with the bad, you just seem to see a lot of this is this is what’s you know, on some of the Telly, your boxer dogs going to be able to do this in three seconds flat, it’s that easy. Nothing is that easy. There’s always a need to improve financial education. And you’ve got to understand what your buying habits are. So
if you were to say there were three things that firms should really focus on now, and are going to be important over the next six months, you put your crystal ball and take the rest of all out, what would you say they were or they should be?
So I think in relation to the consumer duty, it’s about culture. So with anything here, it’s translating the way you’re going to engage with your customers understanding that roadmap, and that that translates into everyday behaviour. Because all too often, we see hollow statements, or wonderful advertising, but the experience doesn’t live up to it. So putting your money where your mouth is, is critical, I think on culture. I think secondly, for most of the business models, trying to convert your business model into something that is much more flexible, particularly consumption based. And this is where cloud computing has become important that if you had to flex your business model in you had another COVID that you will be much more prepared for the next time round, which I think includes hybrid working, I think you have to have that in your locker. So a good example, when face to face advice went into lockdown it shut. I didn’t have an alternative. They didn’t have a plan B. Next time around, we have to have a plan B. And I think with the digital transformation, I think we have to if it has to be anywhere you have to look at your data lead strategy. And I think more than anything else, firms need to invest more in how they use their own data third party data and bring that to the fore rather than it being an afterthought. EMI is often an afterthought reporting is often an afterthought. Joining up your Omni channel from a series of bolt ons is often an afterthought. So I think data analytics using the data you have evidence in here using third party data. And I’ve referenced things like the vulnerability registration service. But there are an awful lot more challenges arise to get data and embed that in your process. Because I honestly think we are an insurer, a creditor. One day the regulator’s going to say you had that data, why didn’t you use it? And that will be a more heinous crime that you had the data and didn’t use it, versus not having the data.
Yeah. Well, Kevin, as always, it’s fascinating to talk with us, give me lots of things to think about, and I really appreciate you making the time so thanks very much. In pleasure.
Thanks a lot, Chris.
Send a message - get in contact
|RO-AR updates||RO-AR.com Membership|
|New content notifications|
|Early content access & previews|
Access product demonstrations