By Helen Lord, CEO of the Vulnerability Registration Service

The issue of protecting those who are vulnerable, or have fallen into vulnerable circumstances temporarily, from further harm has been high on the FCA’s radar since 2017. Over the pandemic, it became urgent.

The regulator has been clear that firms in all sectors need to pay attention to the fair treatment of vulnerable consumers across all products and services. And they must be able to demonstrate how their business model, the actions they take, and their culture ensure the fair treatment of all customers.

Before the pandemic hit, the FCA had highlighted that 24 million people were in fact showing one or more characteristics of vulnerability. Since the pandemic, we have entered a cost-of-living crisis and are now experiencing conditions that haven’t been seen since the global financial crisis in 2008, with inflation at a 40-year high.

It is clear that a large proportion of the population will be struggling to make ends meet and there will be many more people who will be experiencing this squeeze on their finances for the very first time in their lives. The impact of that on mental health will be significant.

Never before has the issue of protecting vulnerable customers from further harm been so urgent and we believe it is one of the biggest challenges that banks and financial services will face.

But despite the FCA’s focus on protecting vulnerable customers, our research has shown that two in five vulnerable people still feel unfairly treated by banks and financial services.

Why is there still a long way to go on the issue of vulnerability?

Some progress has been made, but only parts of the issue have been tackled. In a lot of cases, it has been at an inadequate level. And this is not just the banking and financial services sector, but across all organisations that provide a service.

Many organisations believe they have taken sufficient enough steps and now ‘know’ who their vulnerable customers are. The reality of the matter is that these vulnerable customers will be the small number of individuals who have proactively approached those organisations to make them aware of their circumstances. And their experiences of doing so have been varied – with 29% saying it was acted upon and they were provided with help and support, while 37% struggled with having to keep repeating their circumstances to different departments within different organisations.

There will be significantly more people who have not revealed their vulnerable circumstances and identifying them is a real challenge, especially as some vulnerabilities can be transitory. It’s clear that there is still some work to be done in enabling vulnerable customers to easily disclose their circumstances.

In many other cases, progress on treating vulnerable customers fairly has simply amounted to ‘lip service’. This is unacceptable, considering that many of these individuals have already reached a limit on what they can cope with. The unguarded actions of an organisation could push them over the edge.

A key barrier to progressing forward on the issue, however, is that most firms do not know how to manage those vulnerable customers once they know who they are.

There isn’t a ‘one size fits all’ approach to vulnerability. Vulnerability is extremely complicated. It can occur for many different reasons, not just debt, and every circumstance needs treating in a different way. If they are managed badly, it can become very resource heavy to remedy and negatively impact both the vulnerable person and the organisation.

A seismic shift in the sector and a crucial role for fintechs

Unfortunately, even with the pandemic and now the current cost of living crisis, vulnerability has failed to secure a place as a high priority for firms. There has been a lot of talk, conferences and media attention, but action has been limited. The new Consumer Duty, however, is going to change this. It is a major step forward in making sure people are treated fairly when using financial services. It is the ‘yard stick’ that’s been needed within the sector to ensure that the needs of all customers are properly met by firms.

They will have to prove they’ve taken clear and proactive steps to identify, understand, assess and engage with their customers at every single stage of the customer relationship, with a focus on achieving the right outcomes. All of this has to be done without draining their resources and dramatically impacting their daily operations. And, they have to move quick – by 31 October 2022, Boards are required to have an implementation plan in place and firms have until 31 July 2023 to implement the Consumer Duty rules for all new and existing products and services that are currently on sale.

Vulnerability cannot be tackled by one organisation alone. There are too many pieces for one organisation to address fully, but the forthcoming the Consumer Duty will expect this to be done.

This is where fintechs have an opportunity and a crucial role to play.

The rapid growth of fintechs over the last 10 years has shown just how vital they have become for the industry. The very nature of the way they work, their focus on delivery, efficiency, cost effectiveness and ease, means that they are in a prime position to help service providers address the issue once and for all.

When it comes to vulnerability, over the last few years many innovative and results driven fintechs have been born specifically to deliver real impact in this area. Each one has been formed to offer a solution on a specific part of the vulnerability challenge. The Vulnerability Registration Service (VRS) is one of them. For example, the understanding and perspective on vulnerability that the VRS enables has developed through sourcing and collating sensitive, but vital data that is extremely difficult to obtain. It has been hard earned, but the VRS has achieved it and it now forms one extremely vital part of the ‘vulnerability jigsaw’.

There are many collaborations forming between fintechs to bring the other pieces of this jigsaw together. This will be the key to enabling major industry service providers to fulfil their obligations easily and address vulnerability fairly and appropriately at every single stage of engagement.