Posted: 26th June 2017

The FCA consultation on the implementation of the second Payment Services Directive (PSD2) closed on the 8th June 2017.

This flagship regulation forms part of the current move to unify the payments landscape. The rule changes and their impacts on firms are myriad and focus on enhancing competition and consumer protection. The FCA cites that, from a consumer protection standpoint, the directive will “further improve security measures and give payers certainty about security when they make payments”.

However, if you only took a fleeting glance at the PSD2 requirements, it would be easy to miss the impact it will have on complaints handling. Many commentaries I have read on PSD2 merely mention that there are complaint changes. I believe this underplays the scale, scope and potential future read-across that these changes will have on what’s expected of firms regarding complaint handling.

The new requirements can be summed up in a couple of sentences:

“Under PSD2, payment service providers must give a full response to complaints that involve rights and obligations under PSD2 within 15 days. If there are exceptional circumstances, this is extended to a maximum of 35 days and the firm must send the payer a holding letter in the interim.”

15 days – that is a reduction in the regulatory timescale from eight to three weeks to fully investigate a complaint. The maximum for exceptional circumstances still reduces the timeline from the current allowance. In the most recent complaints reporting, 7.2% of all FCA regulated complaints were still breaching eight weeks. Indeed, one large bank’s banking and credit card complaints breached this limit in 16% of cases. Were all the cases “exceptional”? Consequently, while the above is certainly a simple change to understand, the operational impacts on affected firms will be significant.

Who is affected?

All firms that offer payment services are captured by this requirement. This includes banks, building societies, payment institutions, credit card providers, money remitters, e-money issuers, firms offering services based on access to payment accounts (e.g. payment initiation services or account information services) and non-bank merchant acquirers.

For some smaller firms, all of their complaints will be subject to this requirement. However, in terms of larger firms, only some complaints (those about the payment services they offer) will be affected. This compounds the operational challenge, implying that firms may need to operate a ‘two-track’ process for payment and non-payment related complaints; one that meets the three week payment complaint requirement, and another that meets the eight week non-payment complaint requirement.

Would this be the right approach? Should firms be thinking about a two-track process, or are there other options?

What do customers think?

In our Complaints Outlook, 42% of customers told us that they may not bother making a complaint when something goes wrong due to the perception that the process will take too long. 82% of customers told us that they expect firms to resolve their complaint within one week. Customers’ expectations of firms, particularly in relation to timeliness, are much greater than the regulator’s eight week complaints timeframe.

This view is backed up by anecdotal conversations I have had with several large firms impacted by PSD2; they want to set themselves the ambitious target of moving to a 15 day SLA for all complaints, with seven weeks seen as a back stop for the most complex payment and non-payment complaints. They have also quoted statistics that suggest up to 90% of payment complaints are today handled within 15 days – for some firms moving to 15 days for all complaints could be achievable; for others, it will be a greater challenge.

Consequently, are the complaints requirements in PSD2 going to be a catalyst for real competitive advantage within the banking sector for complaints handling? Will we see a widening of the gap in quality of customer service between banks, with the most well setup firms being able to deal with vast majority of complaints within 15 days, and others continuing to focus on the eight week timeframe?

What should affected firms be doing?

The regulation is due to come into force in January 2018, meaning firms have little over six months to get setup. Here are some key questions to consider:

  • While clearly a healthy aspiration, operationally, can you move to a three / seven week SLA for all complaints to avoid having two distinct processes for payment and non-payment complaints?
    • If so, you will need to start making the necessary operating model changes now; this will not be a complex change to make but will require a robust operating model and sound approach to capacity planning to be in place already
    • If not, then the regulatory implementation itself is likely to be more complex. You will need to be clear on the definition of a payment complaint, make appropriate system and process changes and then equip your escalated complaints operating model to triage these cases. Requiring front line staff to differentiate between complaint types (and therefore the correct complaint process) may  be a challenge, and many firms may decide this is unnecessary given they will only be dealing with most complaints within a three-day window anyway
  • What constitutes ‘exceptional circumstances’ with regards to payments complaints? Are you able to set clear definitions, or will any payments complaints that you haven’t managed to resolve within three weeks automatically be considered exceptional? Can you set an internal risk-appetite metric for how many exceptional cases you would expect?

What should unaffected firms be doing?

In a phrase: prepare for read across.

While this is an EU-initiated regulatory change, some industry participants think an eventual change to a 15 day SLA for complaint handling is inevitable. How would your complaint operation need to change if this requirement was imposed on you? When you consider what customers expect, and what others across financial services (and across other industries) are doing, does that provide a business case for you think about your own SLAs?

Moving forward under PSD2

Whatever you think can be achieved in your operation – whether you are impacted by PSD2 or not, or what further regulatory change may be just over the horizon for complaints – customers’ expectations are only going in one direction. Focusing on setting yourself up to meet or exceed those expectations will be what differentiates your firm, and PSD2 may provide the opportunity to for your firm to take the next step in its complaints journey.

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