UK FinTech sector positioned for success with consumer duty regulation, study shows

By Puja Sharma

The UK’s FinTech incumbents have the tools to deliver customers a fair, transparent and easy-to-use financial offering

The past decade in finance has been defined by a new approach of customer-centricity. Propelled by a wave of FinTech innovation, consumers have gained access to a wider array of financial services than ever before. In an era where the focus of financial services is shifting towards the customer, the Financial Conduct Authority’s (FCA) Consumer Duty regulation raises the question if traditional finance is still best suited to fulfil the needs of the market.

Brought into force on July 31 last year, Consumer Duty forces financial services firms (including banks, FinTechs, and insurance brokers) to prove that they are delivering good outcomes for their customers. Firms breach Consumer Duty when they fail to protect their customers from financial harm. Prior to the rollout of Consumer Duty, the FCA had fined Standard Chartered Bank and Santander UK to the tune of over £100 million each for breaching anti-money laundering rules. In these cases, the banks failed to protect their customers from risk.

Moreover, Consumer Duty isn’t just about protecting customers from harm. It’s also about ensuring customers have a clear understanding of the financial products they are using and are able to make sound financial decisions as a result. As the FCA demonstrated in Financial Lives Survey in May 2022, just 33% of adults with a day-to-day bank account now carry out banking services face-to-face. Digital payments and mobile wallets are the new normal, with 91% of adults making contactless payments and almost half of adults using mobile wallets as their primary payment method. These changes represent a major shift across the finance landscape, where new and innovative financial technology provides customers with clarity and flexibility over their financial choices.

Jeremy Baber, CEO of Lanistar, said, “Consumer Duty is a welcome change. With the rapid adoption of new and emerging technologies into finance, consumer expectations have greatly changed over the last decade. Fast, easy, and transparent access to financial services is the new normal. Even before Consumer Duty was announced, FinTechs have been working hard to deliver on the ever-evolving customer expectation, bringing a wave of innovation and a bold new approach to finance. The FCA’s timing, therefore, could not be better. Now is the perfect time to consolidate the progress of the market and ensure that customers are being provided the service they deserve.

“Moreover, a new and innovative approach to finance isn’t the only reason FinTechs are well poised to deliver on Consumer Duty. It’s also because they challenge the status quo of traditional finance. With debanking scandals, the mass closure of banking branches, and shocking cases of anti-money laundering breaches, many people are doubting whether their banks have their best interests at heart. As institutions, banks need to provide more than just access to finances. They need to provide security, transparency, and peace of mind. In recent years, it is doubtful whether they are delivering on any of these points. That’s where FinTechs, particularly in light of the changes brought by Consumer Duty, can fill a gap in the market, providing an all-in-one transparent and secure financial offering powered by the latest innovative technology.”

Another reason why FinTechs are well-poised to reap the rewards of Consumer Duty is the UK’s already thriving sector. New regulation, like Consumer Duty and the upcoming Payment Services Directive 3 (PSD3) from the EU, will help to fan the flame of innovation in the FinTech sector, taking it to even greater heights. Whilst there was certainly a down period in terms of FinTech investment at the start of 2024, the industry is showing the early signs of further supercharged growth.