The ‘consumer duty’ to reduce harm has been on the minds of our financial services organisations since it was first laid out in 2019. As a societal challenge, it has become an even more pressing issue, in the wake of a perfect storm of the COVID-19 pandemic, the cost-of-living crisis and uncertainty over inflation and national insurance rises.
Financial vulnerability is a complex issue. It arises from multiple influences and is an amalgam of highly subjective events, where it can feel that ‘no case is the same’.
This issue explores key themes from our investigation with consumers directly affected by financial vulnerability, along with input from internal insights from colleagues working close to the field. Our intention is to provide insights on how organisations can navigate what we call the ‘vulnerability gap’ and offers some guiding principles for creating services designed to address vulnerability.
Defining financial vulnerability isn’t (merely) about precarity
Financial vulnerability is not an absolute or fixed state that consumers have or don’t have. It is a relative condition that can occur at any stage during one’s life. It can come in ebbs and flows and its impact can be seismic in certain situations and innocuous in others.
While precarious living is a common feature of vulnerability, financial vulnerability is not a synonym for poverty. Financial vulnerability is not defined by what you have, or don’t have, but by your susceptibility to financial harm. Susceptibility to financial harm is induced by certain behaviours which make an individual more prone to it.
Anyone has the potential to exhibit vulnerable behaviours and anyone can be at risk – vulnerability doesn’t discriminate and it doesn’t take much for someone to fall into the ‘vulnerability category’.
This makes identifying financial vulnerability a tricky task: not everyone who displays characteristics of vulnerability are vulnerable and not everyone who is vulnerable is even aware of their vulnerability.
Consumer-led themes explored in the report
- A changing state of vulnerability
- Vulnerability as a lived experience
- Where the lines of responsibility blur
- Where financial services experiences are failing
Vulnerability mindsets in UK consumers
Mindsets are attitudes, beliefs, assumptions and ideas that individuals have, which shape their thought habits and affect how they think, feel and act. Groups that differ when it comes to demographics and background may have comparable mindsets around a particular issue.
Through our research, we have identified six ‘vulnerable’ mindsets:
Ostriches are those who just don’t want to deal with the situation they’re in and try to avoid it at all costs. They are not necessarily overwhelmed by the situation but can’t and don’t want to face it.
The Free Faller
Free Fallers are in a state of high stress and anxiety, and prone to knee jerk reactions. The newness of their situation can make them extremely vulnerable to dealing with their situation recklessly, making foolhardy decisions such as getting ‘pay day’ loans ‘just to get to payday’ in moments of distress.
The Resigned have made their peace with anxiety and all that comes with their financial predicament. They are beyond looking outwards and seeking help; rather, they are ‘going through the motions’ so as to not burden themselves with the reality.
The Undiagnosed are, as their name suggests, unaware of the cause of their financial issues or that they may be financially vulnerable at all. A lack of financial education in earlier life can lie at the root of people being unaware of their situation. However it is the lack of support and guidance from their financial service provider that is keeping them from changing behaviour. This can be changed.
The Wishful Thinker
Wishful Thinkers believe that they are on track when it comes to their financial goals. In reality, they are far from achieving them and could be doing a lot more to improve their situation. They are at risk of becoming Ostriches if they are not handled with care and empathy.
Self improvers will often have made a budget and are trying their best but will have redefined their habits as something which doesn’t necessarily need to be worked on.
See the full report for ways to engage these mindsets.
These mindsets are not static. Any customer can move mindset. The same person can go from a Wishful Thinker to an Ostrich and then on to a Self Improver in the space of a month. If we design with all these needs in mind, there is a good chance of meeting the needs of most.
Principles to keep in mind when designing for financially vulnerable consumers
Principle 1: Establish where your moral ‘line’ is on financial vulnerability
Financial service providers should make a clear call on where they stand on a spectrum of ‘Laissez Faire’ to ‘Interventionist’.
Principle 2: Stop treating vulnerability as a separate, abstract, marginal ‘other’
Providers need to start designing products that will ensure all consumers will achieve good outcomes.
Principle 3: Consider the potential long term value of vulnerable consumers
Vulnerable consumers are already profitable. Moreover, what benefits them benefits all customers.
Principle 4: Build an empathy culture that permeates the organisation
Crossing the vulnerability gap will mean fostering empathy, but in a way that goes beyond merely ‘listening’.
Principle 5: Seek to ‘de-other’ the difficult experience of vulnerability
Destigmatising and ‘normalising’ vulnerability can lower the barrier to talking about it and acting on it.
Principle 6: Reconceptualise decision journeys, asking ‘vulnerable to what?’
Businesses need to look beyond fixed demographics and avoid linear product journeys that overlook possible vulnerabilities.
Principle 7: Make your peace with ‘positive friction’ and recognise ‘sludge’
The challenge of meeting vulnerability obligations suggests that ‘fast purchase’ and ‘slow exit’ aren’t sustainable.
Principle 8: Harness the benefits of dynamic data and the single customer view
The ‘single customer view’ and dynamic data will be valuable weapons for tackling financial vulnerability.
Values to hold closely when engaging with financially vulnerable consumers
- Be demonstrably empathetic
- Be tactful
- Be alert
- Be transparent
- Be constructive