- Introduction – the landscape
Good morning.
Let me begin by thanking Banking and Payments Federation Ireland for the invitation to introduce this session on the future of customer engagement and banking channels. It is good to see this topic on the agenda today, given how important the quality of customer service and engagement is as a driver of consumer trust and confidence.
Like others, the banking and payments sector faces challenges to ensure it delivers a service to consumers that they trust and are satisfied with, so it is good to see you tackling these issues – and doing so with a future focus. These challenges include how firms will deliver on their digitalisation and enhancement programmes in a context where consumers’ expectations of service are also evolving (including being influenced by the levels of service they receive in other contexts), as well as the threats posed by fraud and cybercrime.
Alongside these challenges are opportunities, especially if the transformative potential of technology can be properly harnessed. An estimated 96% of people in Ireland (PDF 1.21MB) have a smartphone and our dependence on such devices has expanded to include paying for goods and services, researching financial decisions and accessing financial services more broadly. Yet we also see that this does not necessarily mean that consumers are willing to operate in a fully digital environment. Even those consumers who prefer to carry out their services digitally will want, or need, human interaction at certain times, and so firm’s digital strategies will have to become increasingly sophisticated and anticipatory of these trends and preferences to meet consumers’ needs.
So, the scale and pace of ongoing societal and economic change means that financial services have to innovate if they are to remain resilient into the future. As regulators, we must be live to the important interaction of this dynamic between innovation and resilience; while recognising that our regulatory framework enshrines hard lessons learned from the past that should not be forgotten.
So how to think about the regulatory framework in this context. In my view there are three key parts of that framework – akin to a three legged stool:
- Rules - to set out the rules to drive positive behaviour and enable people to be held accountable for mis-behaviour. Oversight of these rules by regulators provides an important and essential safeguard to the soundness of the system and the protection of the interests of consumers at large.
- Education - Consumers need certain basic knowledge and ongoing information. A well-informed and confident consumer is far better equipped to identify their specific needs and to hold firms to account to provide them with the service they expect.
- Culture - Firms must have a culture of promoting ethical behaviour – and support from their industry body to do so.
Continuous progress is needed on each of these three legs, recognising that progress on one is not a substitute for progress on another since they play different roles, albeit towards the same goal.
In my remarks today I wish to speak to you about each of these three legs that hold up our regulatory framework - rules, education and culture.
- Enhancing the rule book
First, to our rule book, where significant enhancements are underway.
Financial services is a highly regulated industry that benefits especially from our membership of the European Union, through the common rulebook, passporting regime and coordinated supervisory system the EU provides. In Ireland, as in other member states, this is supplemented with domestic requirements, chief amongst which is the Consumer Protection Code. This Code has served consumers well since it was first introduced in 2006. As Governor Makhlouf has said “the Code is a cornerstone of consumer protection in financial services in Ireland, establishing a set of rules and expectations for how firms should treat their customers and has allowed the Central Bank to intervene to protect consumers”.
As you know, we are reviewing the Code to ensure it remains fit for purpose into the future. Our goal is to modernise the Code centred on Securing Customers’ Interests and a targeted package of new measures on topics from digitalisation to unregulated activities to frauds and scams, and vulnerability, as well as informing effectively, climate and (importantly in today’s context) mortgage credit and switching. Consumers will benefit from the added clarity on their regulatory protections, as well as a package of new protections that reflects how most are accessing financial services today. Regulated firms will benefit from an integrated regulatory format, a more coherent structure and a clearer articulation of their consumer protection obligations. Your engagement and feedback was critical to shaping our public consultation paper, where we set out our specific reform proposals. I thank the BPFI and its members for their submission to that consultation and we will give close consideration to everyone’s input.
The review of the Consumer Protection Code takes place alongside the new Individual Accountability Framework, which also enshrines key concepts and requirements for how we expect to see senior individuals in regulated firms discharge their responsibilities to their customers. Combined, the Consumer Protection Code and the Individual Accountability Framework will form the bedrock of our supervisory work to ensure the best interests of consumers are placed at the heart of regulated financial services. To quote Governor Makhlouf once again on this topic: “Consumer protection is at the heart of everything the Central Bank does. We are transforming how we regulate and supervise so that consumers remain well-protected and that their interests remain a key focus in the commercial decision making of firms.”
- Educating and informing consumers – a multi-stakeholder approach
Before turning to culture, let me first say a few words on the important (and all too often neglected) leg that is financial education.
We need to do more to equip consumers of financial services with the information and capabilities they need in today’s financial services market.
This is not something that one actor in the system can deliver. It requires a multi-faceted and collaborative approach, with all participants playing their part. In this regard I welcome the work underway by Government on the National Financial Literacy Strategy.
For our part, the Central Bank of Ireland will continue to provide information to support consumers consistent with our role. This includes warning consumers about potential risks, equipping them with basic information to help guide them in navigating the financial services we regulate and educating consumers on their rights - not least of which being the framework we have put in place for firms to deal with consumer complaints and the services of the Financial Services and Pensions Ombudsman.
We do see that firms and industry bodies are taking action on financial education. I encourage you to do more on this front, building on the initiatives we have seen on topics such as the bank account migration and frauds & scams. In particular, today, I want to put to you the idea that consumer education is in fact a core part of the service that your firm provides. This can take place through your direct engagement with consumers at points of sale or advice to ensure consumers are adequately supported to make financial decisions. It can also take place more thematically as you educate consumers on key issues, opportunities and risks affecting their financial wellbeing. And here I believe technology should be a key enabler to you in playing an ever more prominent role in educating consumers of financial services.
- Embedding a culture of effective customer service and supports
The third and final element of the framework that I want to cover this morning is culture.
Increasingly regulators are placing a focus on culture as a ‘common denominator’ to mitigate risk in a context where events unfold so rapidly, and it is not possible to set detailed rules to anticipate every scenario. I have noted in public remarks[1] previously that one of the most powerful of these cultural ‘common denominators’ is that of placing consumers at the heart of commercial decision making (and I went on to explain what that means). Today, I am adding to that thesis that basic customer service is a place in your business where you can make swift and necessary progress in fostering a more consumer focused culture.
It is also well understood how important culture is to building trust with your customers. We know from the information published by the Irish Banking Culture Board through its customer based Éist survey, that while trust levels generally are increasing, there is still more that has to be done to rebuild trust with the public. It is interesting to note from that survey that one in five customers who had high levels of trust in IBCB member banks said “it is largely driven by issues of competence like good customer service, online and locally.”
Where your firms have taken steps to serve customers well, the benefits are evident. We saw this during the recent consolidation in the banking sector and the migration of over one million customer accounts. By taking a collaborative and coordinated approach, the sector came together to provide positive customer service outcomes, that contrasted with what could have been the outcome absent this approach. (And I might also add this too was a case where the industry took the initiative to proactively inform and educate the consumer public as the process progressed.)
We see the importance of customer service also mirrored in those cases where consumers are dissatisfied. The Financial Services and Pensions Ombudsman’s Complaints Overview for 2023 (PDF 2.16MB) shows that the primary source of complaints is linked to customer service, accounting for almost a quarter of all complaints to the Ombudsman. For the banking sector specifically this rose to 32% of all complaints.
This is not an isolated trend. It is backed up by customer sentiment analysis published by the Department of Finance last year, which found that customer service is the main reason for dissatisfaction with banks, both at a branch level and for remote services. We can also see this in our own social media trends monitoring and analysis of the complaints made directly to firms. For example, banks have reported to the Central Bank that during 2023 their customers complained to them 81,000 times. Over two thirds of those complaints were about account processing & administration and other customer service issues, resulting in almost €1.6m in redress to those customers (making up almost two-thirds of all redress paid to customers who complained in 2023).
And, as we see consumers’ own service expectations increase, I believe the clock is ticking for the Irish banking and payments sector (and other financial sectors) to raise their game on basic customer service.
Issues related to customer service and supports are increasingly prominent in the main findings from our supervisory engagements. Working in regulated firms, you will be aware of our interventions on customer service topics specific to your firm, as well as thematic interventions from call waiting times to the quality of customer service for people in or facing early arrears on their mortgage. And there is an array of cases in the public domain surrounding errors and cases requiring redress to consumers (where, I would say, we often continue to face more to and fro with firms than should be necessary).
We also observe that, where issues have been brought to our attention by consumers or other stakeholders, when the Central Bank became involved and issues were escalated to the firm’s management team, the firm itself recognised it was below its own standard and rectified the situation. It is good to see this responsiveness. But too often it begs the question why it took a Central Bank intervention to bring this level of senior management attention to an issue a customer was already complaining about that clearly called into question how the firm was delivering for its customers in general.
So, I believe there is a degree of embedding of a more consumer focused culture underway within regulated firms (including driven by the publication and implementation of our Consumer Protection Risk Assessment Framework, which I encourage firms to apply in their own activities). I also see a good level of responsiveness by regulated firms to the Central Bank’s interventions.
However, the level of service a consumer receives, especially when things go wrong, cannot continue to be so differentiated based on whether or not the specific matter is one on which the Central Bank is focused at that point in time with your firm. Responsiveness to regulatory interventions is not enough, and the time has come for firms to pay more attention to the basic levels of service consumers receive and how the sector is going to deliver for those consumers into the future.
- Conclusion
When we think of the future of customer engagement and banking channels, we need to anchor our discussion in those customers’ present experience. As I have outlined, we see a mixed bag.
We see some good initiatives, particularly in the space of media and other educational campaigns, and a good level of responsiveness by firms to interventions by the Central Bank.
I thank Banking and Payments Federation Ireland once again for the opportunity to speak to you on this important topic, which I am glad to see on the agenda. I wish you well in your discussions and I look forward to the banking and payments sector making progress in enhancing its services to better serve consumers into the future.