Confession #3: Avoiding the jargon busters
Some fintechs are getting caught out by the regulators when using terms like “banking” or overstating a product’s benefits. What marketing pitfalls should I avoid?
The lines between the different fintech and payments businesses a consumer may interact with are often blurred. Yet each has a very different set up and the protection behind it is not the same.
For example, both banks and e-money institutions offer consumers an account and financial instruments. However, a bank with a banking license is a deposit-taking institution allowed to lend out the deposits they hold and the accounts they offer are Financial Services Compensation Scheme (FSCS) protected. This means if the bank collapsed a consumer will receive compensation for deposits of up to £85,000.
By contrast, Electronic Money Institutions (EMIs) issue e-money and provide payment intermediation. They cannot lend out their deposits, and while consumers’ deposits are safeguarded, they would not be entitled to compensation.
There are prohibited terms that the Financial Conduct Authority (FCA) and the Secretary of State deem as ‘sensitive’. Any sensitive words used in a brand name should reflect the regulated activities that the business is authorised to carry out.
For example, using the word ‘bank’ or ‘fund’ could be considered misleading and would require approval before being registered. And if the name is misleading consumers may assume the business has FSCS Protection is in place. This could lead to customers mistakenly registering for something unsuitable to their needs.
Another factor to consider is Treating Customers Fairly (TCF). This FCA’s requires all firms consistently show that fair treatment of customers is at the heart of their business model.
This is especially relevant when a fintech produces marketing materials. TCF requires that all facts and statements are true and correct, and all images used are appropriate and not misleading. The FCA’s social media and customer communications guidance are also important to read as social media and the use of “influencers” grows as a marketing strategy.
Some firms get confused when the FCA rules you cannot highlight product benefits without mentioning the associated limitations. While it may sound counter-intuitive to talk about limitations, it is a fundamental requirement that all communications be clear, fair and not misleading. You couldn’t say “our card can be used at any ATM”, as not every ATM may accept the associated payment rails.
Fintechs get into trouble when they make unfair comparisons or unsubstantiated claims. These could include “best in market”, “cheapest rates”, or “quickest onboarding”. These types of claims can be disproven or would be misleading if a consumer didn’t experience what was promised. Thus all financial promotion must be presented in a balanced way. It should always contain enough information for an informed decision to be made.
Don’t get complacent
It is a lot of work to get marketing communications right. At the same time, you should not underestimate the cost and resource associated with a Financial Ombudsman Service (FOS) complaint. The FOS will investigate any complaints brought against a financial business. So whilst you may not think you have done anything wrong, you must ensure you take the FCA’s guidance into consideration and be transparent at all times.
When creating a new programme, fintechs are closely monitored throughout the implementation process by either the schemes or the issuer providing them with scheme access to ensure they aren’t breaking any FCA guidelines.
However, responsibility ultimately lies with the service provider to be compliant, not the scheme or issuer. It is therefore important for all fintechs to have their own policies and procedures in place to ensure compliance is a priority. Whilst any fintech would be expected to have considerable knowledge of the payments landscape and regulations, no fintech is an island and I’d recommend that you speak to your partners to get peace of mind.