Another great event from StepChange again this year. Always great to hear from the regulators live and hear some of the lived experience from clients too, very compelling.
It is impressive to see how StepChange is moving forward with its digital strategy too, not just to automate what they have but also build towards the bigger goal of further reach, and great outcomes for clients. Lots of transparency with partners on feedback, intergration and what is needed too. Very impressive.
Industry Perspectives
The Cost of Living Crisis
- There has been a significant shift in the cost of living crisis since 2022, with rising inflation and increasing household debt levels.
- Higher-income households have begun to experience financial difficulties, drawing in those who previously had not faced debt issues.
- Financial pressure is still prevalent, with 40% of households struggling to keep up with bills and financial commitments.
- The FCA continues to monitor the financial resilience of firms and the capability to meet consumer needs.
- 25% of people report low financial resilience, with many already in unmanageable debt.
- The energy sector has become a key driver of debt, with arrears rising by 43% in one year.
- Firms need to improve customer service and provide empathetic, compassionate support for vulnerable customers.
- Firms are increasingly using speech analytics and lived experience panels to identify and support vulnerable customers. This proactive approach helps address customer needs more effectively.
- The UK Regulators Network (UKRN) has taken a collaborative approach across different sectors to address the crisis.
- Regulatory focus has shifted towards vulnerability, with improvements in how firms identify and support vulnerable consumers.
- Debt collection practices have been scrutinised, with the goal of improving customer outcomes and providing earlier support.
- Communications with customers must be simplified and made more accessible to ensure people understand the support available.
- Organisations are simplifying bills and other financial communications to ensure customers understand their obligations and the support available.
- Trust in the financial services and energy sectors remains low, and companies have a role in rebuilding it by showcasing good practices.
Key Statistics
- 40% of households are struggling to keep up with bills.
- 25% of people report low financial resilience, being unable to manage an income shock.
- Energy debt arrears increased by 43% in one year, from £2.5 billion to £3 billion.
- 50% of consumers are cutting back on essential expenses such as energy, food, and shopping.
- Only 30% of people are aware of social tariffs in the energy sector.
Gen-Z focus group
- Gen Z faces significant financial challenges, including high rent costs, mental health issues, and insecure work.
- Financial education is crucial but lacking in most schools, leading to poor financial literacy among young people.
- Gen Z uses social media, particularly TikTok, for financial advice, often encountering unregulated and misleading information.
- Credit, especially “buy now, pay later” (BNPL) products, is normalised among young people, sometimes leading to debt accumulation.
- Financial habits start forming early, but financial education often begins too late, leaving young people unprepared.
- Digital financial products can engage users but also present risks due to the ease of access to credit without full understanding.
- Digital-first financial products like auto-enrolment savings tools and budgeting apps are making it easier for young people to manage their finances.
- Influencers are being used by institutions like the Bank of England to communicate key financial information, although this space remains largely unregulated.
- Companies are experimenting with new ways to engage Gen Z with financial education through social media, creating content that is relatable and accessible.
- Gen Z is accustomed to the immediacy of digital transactions, which impacts their financial behaviour and decision-making.
- Social media influencers play a significant role in shaping Gen Z’s financial decisions, often blurring the lines between education and advice.
- Financial services companies need to adapt to the needs of Gen Z, providing more intuitive, digital-first solutions.
- Workplace financial education could be a key touchpoint for addressing financial literacy gaps, with employers playing a crucial role.
- There is a strong cultural stigma around financial illiteracy, unlike other forms of education, making it harder to address openly.
- Regulation of digital financial products, particularly BNPL and social media influencers, is needed to protect young consumers.
Key Statistics
- 18-24-year-olds spend 30-34% of their income on rent, compared to 21% for those over 40.
- Gen Z is 30% more likely to experience mental health issues related to financial pressures than older generations.
- 38% of people engage with financial advice on social media platforms like TikTok.
- Buy now, pay later is a common payment method for Gen Z, often the first option in online purchases.
- 50% of young people surveyed admitted they use social media for financial advice due to a lack of other trusted sources.
FCA – CEO update
- Financial inclusion is not only a moral issue but also an economic driver that can boost productivity and growth.
- The FCA has been proactive in supporting consumers through tough economic conditions by introducing guidance and regulations to mitigate financial hardship.
- The consumer duty aims to improve outcomes by requiring firms to communicate clearly and cater to vulnerable customers.
- The link between financial inclusion and economic growth is significant, although more research is needed to fully understand the causal relationship.
- The FCA is focused on improving access to affordable credit, enhancing consumer protection, and promoting financial literacy.
- Digital inclusion is critical to financial inclusion, and efforts are being made to provide better access to digital tools and the internet, especially for financially vulnerable households.
- The FCA supports fintech innovations that enhance financial inclusion, including alternative credit scoring systems and AI-enabled services.
- Financial education, starting at a young age, is necessary to prevent future financial exclusion, and the FCA is advocating for its inclusion in the school curriculum.
- New regulations targeting the “buy now, pay later” sector are being looked at to ensure consumer protection.
- Workplace savings schemes, such as auto-enrolment for savings, show promise in fostering a savings culture.
- Financial service providers should be more active in promoting digital tools and social tariffs to improve accessibility for low-income households.
- The FCA acknowledges the need for regulatory flexibility and is open to experimenting with processes to enhance financial inclusion.
Key Statistics
- HSBC was fined £6.2 million, resulting in £185 million in customer compensation.
- The FCA’s price cap on high-cost, short-term credit saved consumers £150 million annually.
- Cash payments are expected to constitute only 6% of all transactions by 2033.
- 1 in 3 working-age adults lack access to £1,000 in savings.
- 1.5 million households in the UK lack broadband access, with lower-income households disproportionately affected.
- Auto-enrolment in savings schemes increased participation by 50%.
- 85% of eligible employees participate in workplace pensions, up from 41% in 2012.
See also Event: Handling increased arrears - ideas and support for Credit Unions and Community banks
FOS Update
- FOS resolved nearly 200,000 complaints last year, offering insights into customer experiences across financial services.
- Complaint resolution times have been reduced by over 50% in two years, improving customer satisfaction and outcomes.
- There was a 70% increase in complaints in Q1 of this year, largely driven by credit cards and irresponsible lending.
- FOS plays a crucial role in ensuring financial firms comply with FCA rules, particularly the Consumer Duty.
- Many complaints stem from irresponsible lending practices, which include firms failing to account for vulnerable customers’ circumstances.
- The Consumer Duty has influenced FOS’s approach to fairness in complaint resolution, with increased expectations on firms to support customers effectively.
- Financial firms need to take complaints seriously, using them as tools for business improvement and customer insight.
- FOS is engaging with regulators, consumer groups, and charities to address trends in financial complaints.
- There has been a rise in complaints about debt collection practices, often associated with mental health impacts on customers.
- FOS is enhancing its digital capabilities to handle complaints more efficiently, aiming to support a wide demographic, from Gen Z to older generations.
- FOS is consulting on a proposed fee for professional representatives to encourage higher-quality complaint submissions.
Key Statistics
- 200,000 complaints resolved by the FOS in the past year.
- 70% rise in complaints during Q1 compared to the same period last year.
- Over 18,000 complaints about credit cards, with over 15,000 relating to irresponsible lending.
- In Q1, there were over 20,000 complaints related to irresponsible lending, up from 5,500 the previous year.
- 50% reduction in average complaint resolution time over two years.
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