Lenders encouraged to improve digital processes to help borrowers’ understanding

People looking to borrow digitally could be at risk of bypassing important information if lenders’ online and in-app processes are not designed well enough, the regulator has said.

Lenders are being encouraged by the Financial Conduct Authority (FCA) to consider how their digital processes can help prospective borrowers understand what they are signing up for.

The FCA has shared examples of good and poor practice with lenders.

It found that some were using shorter, simplified language and providing “explainer” videos that helped customer understanding.

However, the design of some digital loan processes lacked “positive friction”, the regulator said.

Even though some digital processes are designed to be quick, firms can consider the appropriate amount of friction required, the regulator said, so customers have the opportunity to read and understand the information provided.

Firms may have access to data that indicates customers are advancing through applications too quickly and not accessing key information, features or help, the regulator said.

Under the Consumer Duty, the FCA expects firms to understand the needs, characteristics and objectives of their customers, and this should inform how products are designed and how customers will interact with them.

Firms can identify customers with characteristics of vulnerability and those requiring additional support through digital channels. They can also review the effectiveness of the support available, the regulator said.

Alison Walters, director of consumer finance at the FCA, said: “Online and app-based applications can make it easier for people to get the credit they need to navigate their financial lives.

“But poorly designed applications could mean people bypass important information. We’re sharing examples of what works and what doesn’t, so lenders can better support their customers.”