Asymmetry between Big Tech and financial services firms - opportunities for the Consumer Duty?

Having spent quite a lot of time over the last year advising on the Consumer Duty (the “Duty”), the FCA’s Call for Input on ‘Potential competition impacts from the data asymmetry between Big Tech firms and firms in financial services’ (the “CfI”) raises some interesting points from the perspective of the Duty. 

One of the common challenges experienced by firms in implementing the Duty revolves around data – what do they have, what do they need, what is the FCA expecting, what can they get? This is not surprising given data is central to the effectiveness of the Duty:

• At an overarching level, the question of how a firm can avoid causing foreseeable harm to retail customers requires data on how and why retail customers are using a firm’s products and services. 
• At an outcome-level, to take just one example, firms need data on how their communications are being understood, and the steps consumers take in response, to understand whether they are equipping retail customers to make effective decisions. 

Particularly for manufacturers who are not involved in distributing a product, determining these matters can become an exercise in crystal ball gazing (or require a significant amount of resource to be spent on focus groups and other forms of consumer research), as there hasn’t previously been the level of information flow between distributors and manufacturers to provide that level of granularly. The Duty is seeking to plug this gap to some extent through the information sharing requirements between manufacturers and distributors, but for the industry generally, trade bodies and firms alike, this has been one of the most difficult aspects of the Duty to calibrate and it remains to be seen if the industry approach aligns with the FCA’s expectations.

The CfI is focused on the data asymmetry which arises as financial services firms are unable to access Big Tech firms’ datasets which currently sit outside of data sharing initiatives. The CfI explains that the Big Tech firms have a vast amount of data on their platforms regarding consumers’ lives, tastes and preferences, and therefore could provide insights into aspects such as purchase behaviour and financial/risk profile. This insight could be enhanced by the analytical and AI technology applied by the Big Tech firms over the data they have. 

Data privacy and competition considerations (amongst others) aside, the CfI suggests there are a number of reasons why access to the data collected by Big Tech firms could be helpful for financial services firms, and some of these clearly overlap with firms’ obligations under the  Duty:

• Access to information on consumers’ tastes and preferences (through, for example, browsing history) could give financial services firms a better understanding of an individual’s financial needs. This could assist firms with understanding their target market at a much deeper level and determining the possible foreseeable harm that may arise from their products and services.
• Under the Duty, firms are required to ensure their products and services provide fair value to retail customers. The data analytics and AI which Big Tech firms could apply may enable firms to generate a more accurate understanding of a consumer’s, or a group of consumers’, financial and risk profile (e.g. affordability, creditworthiness and risk appetite), which could, the CfI suggests, reduce the cost of the provision of financial products.
• For consumers with “thin” data files (e.g. consumers with no or limited credit history) data based on activity on Big Tech firms’ core platforms could provide alternative forms data to base service provision decisions on. This could improve financial inclusion by widening access to financial services for some groups of consumers.
• Data from Big Tech companies could improve insights on the customer experience and lead to more innovative customer journeys. This could reduce some of the frictions in the customer journey that the Duty encourages firms to eradicate (e.g. lengthy waiting times).

The deadline for the responses to the CfI is 22 January 2024, following which the FCA intends to report back on its analysis on the evidence it receives. The CfI is noted to be of particular interest to Big Tech firms as well as (amongst others) established regulated financial services firms and smaller challenger firms. No doubt the responses will raise range of perspectives. From a Duty angle, it will be interesting to see if the FCA will, in future, regard the possibility of enhanced data sharing between Big Tech firms and financial services firms as an avenue to better embedding of the Duty.