In research published today, the Panel calls on the FCA to take action to ensure firms improve visibility, and promote benefits, of Basic Bank Accounts (BBAs) - a crucial banking facility to support those in financial difficulty. It also recommends that the FCA takes steps to increase consumer understanding of risks, costs and protections related to non-traditional payment mechanisms, to protect consumers from harm.
Our research – why and how?
In light of a rapidly evolving and complex payments sector, long-term cost-of-living pressures and increasing vulnerability, the Panel wanted to explore consumer use and understanding of BBAs and new payment methods. It commissioned Opinium to conduct a nationally representative survey of 3,001 UK adults in March 2024 to test:
- Consumer awareness and experience of BBAs; and
- Consumer use and understanding of risks and protections related to non-traditional payments (e.g. Open Banking, PayPal, mobile payments, third-party money transfer services, crypto, pre-paid cards) compared with traditional payments (e.g. cash, debit/credit cards, bank transfers)
To better understand the needs and experiences of vulnerable consumers, the survey was designed to identify respondents with characteristics of vulnerability.
Unlocking the valuable potential of Basic Bank Accounts
The survey reveals that 13% of respondents have a BBA, having opened one to make it easier/less complicated to manage money, budget and stay debt-free. BBAs are valued by those who have them, with 94% saying their account meets their needs.
However, analysis suggests a quarter (25%) of people without a BBA have experienced issues that would make a BBA helpful. Low consumer awareness of the benefits, and lack of promotion by banks, appear to be key barriers to unlocking the value of BBAs for more consumers. Of those with a BBA, only 25% opened an account following a proactive approach from their bank, with 55% having to request one. These findings are consistent with those reported in the FCA’s recently published UK Payment Accounts Access and Closures update.
Increasing consumer understanding of new payment methods
Traditional payment methods are the most used by respondents. However, 62% of respondents used at least one non-traditional payment method in the previous year, driven primarily by PayPal (50%) and mobile payments (27%). Lack of knowledge, and trust in the provider/technology, prevent greater use of other new payment types, such as Open Banking, crypto and third-party money transfer services.
Consumers cite convenience (45%) as the main reason for choosing a payment type, placing lower importance on safety (19%) and redress (11%). While respondents claim to have a good understanding of protections, redress and costs related to new payment methods, the Panel is concerned that this may be at odds with the real situation, which is varied and complex with levels of protection often lower, and fees higher, than some traditional methods.
The Panel’s recommendations regarding Basic Bank Accounts:
- The FCA should explore with firms that are required to provide BBAs how they are promoting and making available BBAs so that all those who may benefit from a BBA are made aware of and can access them.
- Given the importance of BBAs for consumers in vulnerable circumstances, the FCA should pay particular attention to whether and how firms are promoting and making available BBAs to these consumers.
- The FCA should ensure that firms are promoting and making BBAs available through a wide range of communications channels in a way that is easily accessible to consumers, and in keeping with the Customer Support and Customer Understanding Outcomes under the Consumer Duty (the Duty). This will ensure information reaches the greatest number of consumers, according to their circumstances, needs and preferences, enabling them to make suitably informed decisions.
The Panel’s recommendations regarding non-traditional payments
- The FCA should consider asking providers of non-traditional payment mechanisms how they are assuring themselves that customers understand the information provided about the costs, risks protections and redress that apply to chosen payment mechanisms, as required by the consumer understanding outcome of the Duty.
- The FCA should consider conducting consumer research to test consumers’ actual understanding of the costs, risks, protections and redress that apply to the types of non-traditional payment mechanisms covered by the Panel’s research. The FCA could also consider a mystery shopping exercise to test the usefulness of firms’ information on this point.
Summary
Panel Chair, Helen Charlton, says: “It is important that consumers, particularly those in vulnerable circumstances, are empowered to make informed decisions about basic banking services and payments, which are essential to participating in society.
To deliver good consumer outcomes under the Duty, and reduce the risk of financial exclusion, firms should be proactive in promoting services that best meet consumers’ needs and should provide clear and timely information ensuring consumers understand the benefits, protections, risks, redress and costs of their payment methods. We are pleased to see this reflected in the FCA’s recent report on UK Payment Accounts Access and Closures Update and look forward to engaging with the FCA further on this important topic.
In closing, I wish to express sincere thanks to Panel member Julie Hunter for providing her valuable time, skills and expertise to lead this important project, and to Jonathan Hewitt for his support.”
12th September 2024
ENDS
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Consumer Panel Secretariat email: [email protected]
NOTES TO EDITORS:
- The Consumer Panel is a statutory body under the Financial Services and Market Act 2000. The Financial Services Authority originally established it in December 1998. The Panel advises the FCA on the interests and concerns of consumers. The Panel is independent. Its views do not represent those of the FCA.
- The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may look also at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available on its website: https://www.fca.org.uk/panels/consumer-panel or via its Twitter account.
- This year (2023-2024) the Panel has undertaken three research projects. All research documents are available on its website: https://www.fca.org.uk/panels/publications-search-results
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