Financial industry firms should use their online design powers for good, rather than employing “sludge” and deception to steer clients toward financial decisions that aren’t in their best interests, the U.K.’s Financial Conduct Authority (FCA) suggests.
The FCA published research into the use of digital design in the financial sector, examining practices such as intentional frictions that make certain options less appealing, and potentially deceptive design elements that push customers toward sub-optimal decisions.
Based on an online experiment into the impact of disclosure design, the regulator concluded that “digital design matters” — design can help or harm clients’ understanding of disclosures, and can affect their choices. In turn, this can impact firms’ compliance with regulatory expectations.
In the U.K., financial firms have a duty to enable retail clients to make sound, well-informed decisions, the FCA noted. It concluded that “selective online choice architecture, and the presence of sludge and deceptive design, can put this at risk.”
Among other findings, the research showed that designs aimed at obscuring information “generally reduce product comprehension” — especially with regard to understanding specific products.
Disclosure design didn’t affect general understanding of financial concepts, such as calculating interest payments, which the report said was instead driven by financial literacy.
The research also found that online design can push clients toward quick decisions that may not be in their best interests, and may not comply with firms’ regulatory obligations.
At the same time, the report found that providing clients with simple, timely information “increased comprehension of some information.”
The FCA followed up by reviewing the websites and apps of a small number of firms, and issued new guidance on how firms should consider their use of digital decision architecture.
It also specifically called on lenders to improve their processes after finding that “the design of some digital loan processes lacks positive friction” — the kind that helps slow down decision-making and can enable better choices — and that some designs exclude information “consumers need, for example, on cost.”
“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,” said Alison Walters, director of consumer finance at the FCA, in a release.