The Consumer Duty and the ‘Goldilocks’ customer experience

Consumer support is one of the four outcomes of the FCA’s Consumer Duty. In this article, Nigel Sydenham discusses consumer support, outlining the regulator’s expectations regarding ‘appropriate friction’ and the challenges firms face in designing the optimal customer journey.

For many consumers, particularly those who regularly shop online, barely a day goes by without being asked for their feedback on some aspect of a firm’s customer service. Whether a simple ‘How was your delivery?’ or a more nuanced ‘On a scale of 1-10 how likely are you to recommend us …’, firms today seem to have an endless appetite for customer feedback.

Underlying this quest for feedback appears to be the assumption that the ideal customer journey is one which requires the minimum of time and interaction. The consumer can easily identify what they wish to achieve, such as making a purchase, and can do so effortlessly in the fewest possible steps.

Of course, for many activities this focus on an easy and friction-free experience is entirely appropriate. However, in the case of more complex customer decisions, such as those relating to certain financial products and service, an ‘effortless’ process may not always be in the consumer’s best interests.

In its guidance on the Consumer Duty the FCA sets out its expectation that firms will include ‘appropriate friction’ in their customer journeys to mitigate the risk of harm and give retail customers sufficient opportunity to understand and assess their options, including any risks.

The concept of appropriate friction is relatively new for the regulator, although it’s not unique to the Consumer Duty – the FCA also applies it in the context of, for example, promotion of high-risk investment products. For some firms it will be entirely new and, on first glance, it can appear counter-intuitive. However, the guidance observes that sales and other processes without appropriate friction or nudges can risk customers purchasing products that they do not fully understand or are not right for them.

Yet there is clearly a balance to be struck here. In some circumstances, friction points or nudges can help to mitigate the risk of consumer harm and support good outcomes, but they can also create unreasonable barriers by making it more difficult for customers to act in their interests.

In the words of the FCA’s guidance:

“What amounts to appropriate friction or an unreasonable barrier will depend on the circumstances. We expect firms to apply judgement and be able to distinguish between positive frictions or nudges that support good outcomes and harmful frictions that create unreasonable barriers.”

In short, the FCA expects firms to carefully review the design and delivery of their customer journey to identify, firstly, whether there are any friction points which constitute unreasonable barriers and, secondly, whether there are any points in the process that would benefit from the addition of positive friction. An example of the latter would be a pause in the process to allow for further reflection regarding a potential purchase.

Just like Goldilocks in the fairy tale, who found porridge which was not too hot, and not too cold, but just the right temperature, firms should be seeking to incorporate enough friction, but not too much – just the right amount. This search for what we might call the Goldilocks customer journey is an important aspect of the design of the firm’s processes.

Yet, as the FCA makes clear, it will not always be possible to identify the right degree of friction at the design stage. Its guidance states that,

“Firms’ consideration of friction points should also be informed by their monitoring activity, which will help them to understand how processes are working in practice and the outcomes they are delivering.”

The FCA’s guidance is clear that, although insufficient by itself, customer feedback is an important element in this process.

So, it is vital that firms consider how customer feedback fits into their overall approach to the Consumer Duty and, in particular, what data they will need to collect to assess whether they are delivering good outcomes for retail customers.    

Nigel specialises in training boards, senior executives and other staff on the impact of regulation and regulatory change.

He is a CFA Charterholder and Chartered Fellow of the CISI, with over 15 years’ industry experience.

With a background in compliance in private banking and wealth management, Nigel has a particular interest in effective corporate governance and the management of compliance and regulatory risk. His interests also include issues relating to ESG and climate risk, conduct and culture (including non-financial misconduct), and all aspects of financial crime prevention, as well as the impact of fintech on compliance and regulation.

Recent assignments have included briefing multiple boards and executive teams on senior management responsibilities, delivering compliance and ethics training for senior managers and front-office staff and creating a user-friendly risk and compliance handbook for a major bank.