FCA to put an end to retention? Industry executives speak out

Today, FinanceFeeds took a close look at the investigation which is now taking place into how customer data is used, and how companies under the licensing of the Financial Conduct Authority (FCA) in the United Kingdom ‘snoop’ on their customers in order to upsell, or retain their business.

Customer retention is vital to the entire business model of most FX brokerages, with 70% of all deposits coming from existing customers, therefore it would be a very big blow if the FCA decided not to allow certain practices with relation to monitoring customer buying habits, social media use, how firms engage with clients via smartphone applications and what information companies harvest in order to retain customers.

In order to gain an industry perspective on this, FinanceFeeds spoke to developers of retention tools for the FX industry.

Amit Bivas, Head of Marketing at Optimove, a company which develops automated retention tools, explained “At Optimove we use 1st party data, captured by the broker/operator/retailer, and mine it to deliver customer insights and marketing intelligence.”

“From our experience, a company usually doesn’t need more than the data it already has, in order to foster effective personalized interactions with its customers” said Mr. Bivas.

Mr. Bivas concluded

“It looks as though the FCA is concentrating on 3rd party data, which is data that users share on their social media channels, and is captured by brands, or data acquired by the brands from different sources. Since using 1st party data is legal, and since it’s more than enough to achieve the holy grail of intelligent 1-to-1 communications, automated retention won’t be banned quite yet” 

Whilst the FCA has launched its investigation into retention practices that has begun with certain sectors, the language used by the regulator hints that it may pave the way for a look at how interaction with customers by firms is conducted. The FCA is looking at the use of existing customer data to upsell, which is most certainly relevant here.

Paul Orford, VP of Business Development at TopFX explained

“This is a catch 22 situation. The clients for some reason believe that the FCA offers them more protection. However, how far does the regulator plan to go when checking on the brokerages? Although regulation is great as it gets rid of the bad apples, we don’t want over regulation.”

The FCA’s actions here have alluded to a potentially game-changing situation, that’s for sure.

Many firms contacted by FinanceFeeds hold the general view that one of the main interest from the FCA’s perspective if they were to extend this methodology to FX firms would be to look at the way B-book operators ‘snoop’ on their customers to solicit new deposits after a customer has wiped their account out.

Effectively, by the FCA spying on their behavior, it would clean up those which seek to use forceful tactics to retain customers such as watching what behavior a customer resorts to if they wiped out their account and are looking on the internet for methods of recouping the money, therefore playing into the hands of a retention department which would then solicit a deposit from a client who is in a state of desperation.

FinanceFeeds understands that certain binary options brands which concentrate on obtaining clients in jurisdictions where gambling is legal – such as the UK – use certain systems to check when customers are viewing poker sites and online gaming sites, so that their retention staff can call them and solicit a deposit whilst the customer is ready to ‘gamble’. This practice would be put to an end if the FCA took its plans further.

David Andrews, Founder, General Counsel & Compliance Officer at British firm Atom8 explained “One would expect the regulator to take a nuanced approach to this topic. At a time when AI can assist in the provision of highly relevant customer focussed information, enormously to customers’ benefit, any blanket prohibition on such algorithms would likely be a retrograde step.”

Mr. Andrews, a qualified lawyer, concluded by stating

“It all comes back to treating customers fairly, and cross-selling relevant product in accordance with the rules of financial promotions is unlikely often a poor consumer outcome. At least within the specialised FX sector, cross-selling is quite limited.”