The landscape in the financial services sector is forever changing, this brings a unique set of challenges for brands and therefore their market researchers. With changing regulations, volatility in loyalty and financial literacy being cornerstones in the coming change, how can market researchers add value in these areas to make sure their brands can navigate the changing tides?
Changing Regulatory Environment
Undoubtedly one of if not the biggest change in the last few years within the sector was the introduction of Financial Conduct Authority’s Consumer Duty Regulations. A huge amount of pressure has been dumped on insight teams within the financial services sector with the sheer volume of requests and the quick turnaround they’re needed. Although the regulations are necessary for the protection of consumers it could definitely be seen as a challenge and even a hinderance on insight teams but it should be seen as an opportunity too.
The first phase of the Consumer Duty Regulations is vague with four key outcomes (Consumer Understanding, Consumer Support, Price & Value and Products & Services) they would like brands to work on which is daunting with the amount of freedom teams are given. This is an opportunity for teams to be creative in their approach to testing as well as building the importance of their insights to wider teams.
Referring to our Consumer Duty Toolkit, this opportunity is not just about being able to try different approaches in terms of methodologies and tools but also on a higher strategic level can be opportunity to bring the customers into the heart of your business with your insights. Using this challenge across the sector as an opportunity to highlight the importance of your work.
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| To stay ahead of Consumer Duty expectations, firms must not only test communications - but elevate customer feedback into decision-making processes. |
The ways we as an agency have highlighted as good practices can be seen in our Consumer Duty Toolkit can be as simple as creating a template for your communications testing, standardising the procedure and getting more reliable results. To refine this process, you can implement things such as a scorecard so you can constantly update the process. To implement that wider learning of the work the insights team do you can put annual or sprint reviews in place to consistently show the value of your work.
Volatility in Loyalty
The second challenge for financial service brands is the potential volatility of loyalty in the coming years. With the advancement in technology and online banking with over 86% of the UK population utilising banking and 53% using mobile apps we now have more control over our finances than ever before. But this comes with the cost to brands that consumers now have more information than ever before making the landscape highly competitive with The Payments Association finding that 15% of the population are actively looking to switch accounts.
Here in the UK we have the highest amount of bank accounts per person in Europe at 2.8 which highlights the extremely competitive landscape brands face in this sector. This isn’t just about the traditional brands competing with each other either, With the advancements in tech and A.I. in the last decade we are facing a new breed of brands. For banks there are ‘challenger banks’ that are adopting a digital only approach with no in-person branches. This saves these brands a lot of overhead costs allowing them to offer competitive rates, brands like Monzo have really hit the nail on the head with the easily accessible app that targets the younger generations in banking with them.
Secondly, we have insurance companies like AXA, Aviva and Admiral, some of the biggest brands in the UK. The difference in Insurance is there are key differentiators between brands in what they offer with some specialising in life, car or home insurance. A new type of company within the insurance sector called InsurTech. These businesses are leveraging the advancements in A.I. and machine learning to improve and automate traditional practices whilst to allowing their products to be priced competitively. This is undoubtedly allowing this new breed of companies is to keep up with growing customer demand and could potentially usurp the traditional players. Some examples of rapidly growing InsurTech companies are Zego, Marshmallow and ManyPets. With their competitive rates the loyalty to the established insurance companies will come under pressure.
Another sector being hit with changes in loyalty is wealth management. The challenge for this space is the emergence of cryptocurrencies which have made people millionaires overnight. If we take the most popular and well-known cryptocurrency Bitcoin was priced at $5 in 2011 but recently hit a record high of $100,000 in 2024 meaning if you’d have invested $50 you’d have assets worth $1 million today. Theres coins constantly flooding the market that spike over a few days which can transform people’s lives. With their being very little financial education taught in schools and the low accessibility of language used within the sector, seeing coins rocketing in value in a week will more likely attract people than investing in low-risk ETF funds over a long period of time.
The challenge for companies in this space and the market researchers will be how they keep current customers engaged with their current products with the new glamourous investments coming out. Another is how they compete with cryptocurrency with Gen Z and Millennials making up 40% of investors according to Statista in 2023. One way this could be done is by increasing the financial education of current and new customers, the benefits of investing long term and how to navigate the volatility of the market etc.
One area that seems to be thriving especially with customer loyalty are building societies with 92% of members saying their branch offers good customer service compared to 87% with bank customers. Additionally, 86% of members claim their brand offers competitive rates compared to 76% of bank customers. One reason for this difference in a market research perspective is the community feeling that brands are creating; this is highly correlated with the use of members communities used by the insight teams. It could an area where other brands improve by using long term insight projects like communities/panels.
Improving Education and Accessibility
As I touched upon in the previous section, financial education is key to getting consumers more engaged with the sector with more than half of young people saying they received no financial education in school. Financial education can include anything from understanding debt, budgeting and understanding financial products, but unfortunately too many people are under skilled in these areas leaving them vulnerable in today’s rapidly changing world.
An example of this is low understanding of interest rates which is the key offering from banks for the reason you should bank with them, they are key to staying above inflation and achieving the saving goals for an individual or family. Yorkshire Building Society reports that £366 billion of the £1.5 trillion held in UK savings accounts are held in accounts achieving less than 1% annual interest. The ONS reports that over the last 12 months from November 2024 the average rate of inflation was 3.5%. Meaning that £366 billion has degraded in spending power by 2.5% in the last 12 months and most people will be unaware that they are actually losing money even though they feel like they are saving money.
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| Consumers are more financially saavy and empowered than ever before. This means firms must act transparently and appeal to an informed audience in order to remain relevant. |
So why does this matter to brands? There is a change coming, the problem of financial illiteracy is being highlighted in mainstream media by the likes of Martin Lewis and charities like The Money Charity are doing brilliant work to educate the population. Those brands that offer resources similar to those mentioned above would be a step ahead of the curve and by adding free value to peoples education coupling that with their competitive rates would undoubtedly increase brand loyalty with existing customers.
A great example of why accessibility is important is the reason announcement by Vanguard that they are introducing a flat fee of £4 a month for any accounts with less than £32,000 might seem a reasonable price with rising costs. But if we take accounts with less than £1,000 invested which you would consider to be young people starting out their journey in investing. They would be charged £48 a year which is a 3100% increase from the £1.50 before the price change. So, although people will hear £4 a month and think it’s not a lot but realistically it’s the people who are starting out their journey who would potentially be loyal customers for 40/50+ years are now being driven out to look at more accessible companies for entry level investors.
Although there are steps being made by the FCA to tackle this, it still feels like a tick boxing exercise done my a lot of brands rather than carrying the deep meaning behind which would ultimately benefit them in the future.
