Article Digital Transformation Financial Services
21 February 2023

Financially Vulnerable Customers – How Digital Helps.

Financial vulnerability isn't merely defined by being over-leveraged and facing into debt issues. Everything from bereavement to mental health issues, gambling addictions to a lack of financial literacy can contribute to people struggling with their finances.

teamwork iconteamwork icon
teamwork iconteamwork icon

Diverse People, Diverse Perspectives

Waracle is an inclusive, inspiring & developmental home to the most talented and diverse people in our industry. The perspectives offered in our insights represent the views and opinions of the individual authors and not necessarily an official position of Waracle.

Key Insights

takeaway arrow icon
The number of people at risk of becoming part of a vulnerable customer segment is growing

takeaway arrow icon
The regulators want vulnerable consumers to receive consistently fair treatment across the firms they regulate

takeaway arrow icon
Banks and other financial institutions are moving to drive vulnerable customer agendas

takeaway arrow icon
Digital solutions like web platforms, mobile apps, chatbots, digital communities and more have a vital role to play

Supporting vulnerable customers is a critical priority for banks and financial services companies, with a 2022 FCA survey showing that a staggering 12.9 million UK adults were rated as having low financial resilience (i.e. someone who is already in financial difficulty or that could be very soon).

This is perhaps not too surprising, given the backdrop of the economic downturn, soaring energy prices, rising interest rates and a fragile job market.

However, the reality of this startling rise has demanded a swift response. The treatment and support of vulnerable customers is now high on the agenda of regulators with the FCA publishing their Guidance on the fair treatment of vulnerable customers, which establishes how financial services companies should support customers affected by the current cost of living crisis.

In their press release, they said “More than 80% of adults reported an increase in their cost of living in March 2022… 27% of the population has low financial resilience and food bank usage has increased by 14% over pre-pandemic levels”.

These trends are worrying both from a human perspective and from a business perspective, as stressed, over-leveraged, worried individuals are just making ends meet… and the financial services industry is having to ensure that they have enough bad debt provisions to weather a difficult year, where price inflation and higher interest rates increase the risk of a consumer credit crunch.

As these pressures are felt more keenly in the coming months, financial services firms need to move past what the regulator expects and reflect back the needs of their customers. This presents a unique opportunity for banks to live up to their aspirations of becoming purpose-driven organisations and leaders of positive change in society.

Customers now expect to be given access to the appropriate support by the companies they choose to engage with. And research shows that customers value choice, when it comes to the mix of digital and human servicing channels. With their strength of preference depending on their specific issue or task to be achieved (e.g. in-person channels play an important role in more sensitive communications, like bereavement, whereas less sensitive issues have a strong preference towards digital banking or mobile apps).

This makes digital platforms ground zero for customer experience, and they can play a hugely important role in supporting vulnerable customers in combination with physical channels if they are designed and developed with empathy for financial vulnerability at their core.

Digital platforms can provide:

  • A means to analyse customer behaviour and detect early signs of financial distress
  • A more anonymous way of asking for help
  • A means to provide personalised support to customers
  • A means to improve financial habits and overall financial literacy
  • The ability to scale access and support for vulnerable customers
  • 24/7 availability

Join us for a deeper dive into the key role that digital can play in supporting vulnerable customers.

What is considered a Vulnerable Customer?

Many publications and portals have somewhat inaccurate descriptions, so let’s focus on how the FCA identifies the group “An individual who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care. The vulnerability can come in a range of guises and can be temporary, sporadic or permanent in nature.”

The above statement is supported by a range of specific cases, of which a specific customer may fall into one or many:

  • Low literacy or numerical skills
  • Physical disability
  • Long-Term Sickness
  • Mental health problems
  • Low income
  • High levels of debt
  • Caring for someone else
  • Being older – loss of financial confidence
  • Being young – lack of financial experience
  • Divorced
  • Bereaved
  • Job loss

So as you can see, financial services businesses are being asked to provide adequate support to vulnerable people that might be at either end of the education spectrum, at either end of the social spectrum and who may or may not have a mental illness, physical illness and/or physical disabilities.

So mapping the user groups and identifying their core needs from digital products and services is not going to be a simple task, especially if they are unwilling to identify themselves as vulnerable in the first place.

How to identify customer vulnerability?

Digital data can provide clues for identifying vulnerability.

Just like digital data can establish what fraudulent spending patterns look like… the right data, at the right quality, trained on the thresholds of certain behavioural habits can flag that people are in need.

Think about these scenarios:

  • A monthly wage has been replaced by ad-hoc payments in – Employment to gig work
  • Duplicated bills for energy and council tax – Paying a relative’s expenses
  • A multitude of subscriptions – Young person with poor financial literacy
  • Sporadic energy top ups on card at newsagent – Person on PAYG rather than tariff
  • Payments to funeral homes – Person is in a period of bereavement
  • Late night flurries of payments to betting companies – Person who has gambling issues

Whilst these individual cases may not require support per se, they might trigger certain content to be surfaced in a banking mobile application or trigger a push communication to take a financial literacy test.

The FCA suggests that financial services companies must “Not just provide financial advice or guidance services. It’s essential to have robust processes in place to spot and manage your most vulnerable customers.”

So the shift is moving from reactive processes to proactive processes. The regulators want to understand how you are mitigating outcomes, not just dealing with them when they occur.

Why is addressing vulnerability so important?

Financial services institutions are privy to our financial lives in a way that sometimes even our ‘nearest and dearest’ aren’t.

Many of us will experience some level of ‘vulnerability’ at some point in our lives, and it’s essential to understand that people who fit into a vulnerable category may not recognise it themselves or may be incredibly embarrassed to admit it.

Therefore digital data, devices and applications have a huge role to play, as admitting that you are struggling to a device is easier than opening up to a person sometimes.

In many instances, customers have access to support and remediation options that they will never explore because of inertia brought by concerns about sub-optimal outcomes.

At Waracle, we have built some of the most used retail banking, business banking, pensions and wealth management applications in the UK.

We know how to research, define, design and develop features and functionality that provably maps to regulatory requirements, whilst providing the highest standards to security and digital care for customers.

If you are interested in finding out more about what we know in this space, get in touch for a free consultation.

mobile application being used by a customer

Financial Services Technology Consultancy

Banking, Insurance, Wealth and Capital Markets.

Our Finance Expertise
Share this article


Simon Hull
Simon Hull
Managing Director