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Assessing fair value has been a difficult task for payments and e-money firms operating in the UK as they get to grips with the Financial Conduct Authority’s (FCA) Consumer Duty rules, panellists said during a Vixio webinar (September 26).
John Gidla, head of payments compliance at Vixio Regulatory Intelligence, acknowledged that fair value is an ongoing issue in all sectors.
“For e-money and payment institutions, it is really about looking at whether you are representing good value for the customer, and we need to think above just pricing,” he said during Vixio’s recent "Consumer Duty: A Blueprint For Consumer Trust" webinar.
He pointed out that this includes looking at the benefits that a product provides and considering the overall structure of a product and focusing on whether a firm is providing for a customer.
The panel focused on fair value in response to the FCA’s publication of a new report looking at good and poor practices regarding price and value outcomes with the Consumer Duty on September 18.
The publication contained insights from the first year of the implementation of the price and value outcome and aims to help firms improve their understanding of fair value assessments.
In the report, the FCA said that firms must demonstrate that all groups of customers get fair value from their products, and be particularly alert to risks that cross-subsidies may disadvantage vulnerable customers.
A challenging area
Stuart O’Sullivan, associate director at Protiviti, agreed with Gidla that fair value has been an area that firms have “really struggled with”.
“From a regulator’s perspective, they still feel that firms are a little bit uncertain as to how they come at, and decide what, fair value is,” he said.
O’Sullivan suggested that the FCA is likely to continue to offer guidance on topics such as this going forward.
“Fair value is one of those things where no parent likes to call their baby ugly, and no firm wants to say that their product doesn’t offer fair value, but as an individual firm, you do have to take a look at your product or your service,” he said.
For payment service providers, this means breaking down the service into its constituent parts and thinking about the target customer and whether they are being provided with fair value.
“You can do benchmarking, and look to the left and look to the right, but sometimes, when you do that comparison across competitors, you all kind of go towards the same place,” O’Sullivan said.
“You shouldn’t take too much comfort from what others are doing, and should come up with your own approach.”
This includes devising individual governance that can satisfy whether a service is providing fair value.
“It is a difficult one, but one which you need to walk through in a methodical way.”
For O’Sullivan, the Consumer Duty is ultimately about understanding where a firm is in the value chain, and how much impact that will have on a customer.
“The customer at the end of the day wants speed in the transaction that is going on.”
He added that firms need to be thinking about where they fit within this chain. “Is it clear how you hand off and accept your part in the process? And is it clear what your service is and the value that you provide? Are you delivering for your customer?”
“Speed is of the element in all of this,” he said.
Vixio’s Gidla agreed that firms need to be considering where they fit in within the value chain.
He pointed out that the Consumer Duty is about the “end-to-end lifecycle of a value chain” for customers.
“There are nuanced models that might not necessarily deal directly with a B2C customer or someone in scope of the Consumer Duty rules, but the unintended knock-on implications could affect an individual.”
In this instance, he noted the merchant acquiring industry. “Some of the sector found it very difficult to understand how they test fair value.
“I think the challenges will grow but it is about understanding the business model you’re in, understanding your pure-play customer market and direct customers you’re looking to engage with and then reviewing back whether products and services are aligned.”
AI and the Consumer Duty
Vixio’s panellists also played down the idea of firms swaying away from AI to ensure good customer outcomes.
“AI has resurfaced as the new kid of the block,” said Suzanne Homewood, managing director of the decisioning division at Moneyhub on the Vixio webinar, listing use cases such as data insights and harnessing past information to improve future decisions.
Homewood used the example of oncology, pointing out that AI has been used to improve treatment for patients.
“They’ll look into past cases to make better, more informed decisions about how to treat a patient, that is what we’re talking about. AI in open finance is looking at vast amounts of data on customer data and being able to make better decisions for those consumers,” she said.
AI can produce data in a faster, more efficient way, she added. “That doesn’t mean that it is infallible. It is only as good as the data it is working on.”
“The challenge should be, if you’re going to use it, does it help? If you take data, AI, and analysis, what that should do is help the experts and underwriters, strategic decision makers and owners.”
This should help people make better informed decisions, Homewood said. “We should be using that data insight to help humans be more effective for people who really need help, vulnerable customers.”
O’Sullivan agreed with this, and pointed to Consumer Duty-friendly use cases that are already on the market, such as automation being used in the telephony process.
“This enables them to identify vulnerable customers when they first make a call into a call centre, and then channel them through to an agent, who can reach them a lot quicker.”
This case of automation speeds up the start of the process and helps consumers reach customer support quicker, he said.
“You can get that customer serviced a lot quicker with the right outcome being delivered sooner for them.”
Watch the full webinar here.
