Delta blues: latest lockdown shows need for customer vulnerability preparedness

By Tammy Peyper
Senior Advisor, Investor Capability

With the Delta variant COVID-19 forcing New Zealand into lockdown once again, there is a very real possibility that financial service providers could see an increase in the number of customers in vulnerable circumstances.

Since the first 2020 lockdown, the FMA and its counterparts on the Council of Financial Regulators (CoFR) has talked to the finance sector and community groups on how they’re responding to customer vulnerability. The COFR Vulnerability Framework reflects this input.

Leading this work for the FMA is Tammy Peyper, who outlines below some of the themes that emerged as she talked with industry about vulnerability.

This piece aims to provide some ‘food for thought’ as firms start to develop or review their current customer vulnerability processes and procedures. It outlines the common themes that emerged during the FMA’s engagement with industry post-lockdown last year. 

Vulnerability may not be the best word to use
Several stakeholders told us they perceive the word ‘vulnerability’ in a negative light, signalling it implied a potential weakness or failing on the customer’s part. While we’re comfortable with the word “vulnerability” and the CoFR framework includes it, you may choose to identify customers in vulnerable circumstances differently.

For example, there is at least one firm that does not use the term ‘vulnerability’ at all, instead using ‘extra care’. It is up to your specific organisation how you define the terms, develop your approach, processes, and procedures to achieve this.

Regardless of the term, we want the same outcome: to ensure that customers who need extra support receive tailored and personalised assistance for their circumstances.

Vulnerability doesn’t equate to hardship
While it is fair to say that someone in financial hardship is vulnerable, vulnerability should be seen in the context of any potential for harm.

These potential harms can include financial exclusion, scams, lack of access to services, exposure to mis-selling, purchasing inappropriate products, and an inability to manage a product or service.

For example, if someone can’t access banking services because their bank’s local branch has closed, and they are unable to contact the bank when they need to, then they are vulnerable to harm (ie being financially excluded). This does not mean they are experiencing financial hardship.

Having hardship procedures in place for instances such as that is just one of the processes needed as part of a firm’s approach to vulnerable consumers.

Know your customer
Truly getting to know your customers and their vulnerabilities begins with getting an overall picture of the client base at an institutional level, then moving to a more granular level, such as their region, and their branch, ending with insights on individuals.

Being well-informed about both current and emerging trends is also essential, as this helps organisations adapt to the changing needs of their customers.

Collecting and analysing both qualitative and quantitative data from a range of sources is crucial too, including the observations of frontline staff, budget advisers and other community support networks, and conversations with customers to understand their lived experiences.

The vulnerability landscape is fluid, as we have seen with the recent re-emergence of COVID-19 in the community, and while policies may not change, how they are delivered at a customer-facing level needs to be responsive to new drivers of vulnerability.

Ensuring organisational buy-in helps clarify how to best support vulnerable customers
It is encouraging to see the financial sector taking a more proactive approach to addressing the needs of vulnerable consumers. Several working groups and forums have already been established, and in some cases market competitors are working together and sharing ideas.

Being familiar with many firms’ vulnerability polices, I’ve observed that the most effective ones have several things in common: 

1. A member of the executive ‘owned’ the policy and had accountability for its implementation.
2. Implementation of the policy and the most recent data on it were standing agenda items at either an executive or board level.
3. Policies and procedures were widely consulted during development, including engaging with community groups, and incorporating frontline staff input at every stage.
4. As staff got a better understanding of what works and what’s needed, the vulnerability lens started being applied to the design and delivery of products and services.
5. Frontline staff had appropriate authority to respond to the needs of the customers they were serving, even if an issue couldn’t be resolved immediately.

Recent events have once again shown us that customers’ circumstances can change between lunch and dinner on any given Tuesday. It is critical to ensure that all of us remain in position to respond to the needs of those customers.

To do so effectively, all firms must have the underlining policies and responsive procedures in place. I hope by sharing these insights I have added to your firm’s continual drive to ensure the best possible outcomes for customers in vulnerable circumstances.