Sovereign nation regulation — opportunity for a citizen-centric approach to building products?
Innovation x adoption = Impact.
Fueled by internet access and smartphone adoption, digital product makers can acquire millions of users faster now than at any time in history. Whilst this creates a great opportunity for business, it creates great risk for sovereign nations.
Risks come in multiple flavors. One example is a disruptive app that threatens local industries and results in an elimination of jobs. Another would be malicious software or accidental application resulting in inappropriate targeting (e.g. facial recognition software).
Across the globe, we are seeing a trend where more central governments and regulatory bodies are pushing back against “Big Tech.” In Europe, it was the introduction of the GDPR regulation to improve consumer and business privacy that has led to a wave of discussions and strategic product choices. Whilst in Australia it was regulation forcing Google and Facebook to pay for news shown on their sites to protect the Murdoch media empire. Prior to the agreement, there was a period where Australians wondered if they would be able to access Google and/or Facebook while in Australia.
Australia recently introduced the Design and Distribution Obligations (DDO) legislation to protect consumers and make sure that financial products benefit a market segment and that they are marketed appropriately. We believe that these are not isolated incidents but part of a broader trend. The rise of nations or regulatory bodies (e.g. the European Union) asserting their geographical priorities to protect their citizens will cause more G20 governments to revisit legislation to ensure big tech and fast movers are acting in the best interest of the citizens, particularly in the areas of financial services, healthcare and other areas where privacy is important.
For Australian organizations, we have seen with our clients how Productboard can help them be more citizen-centric, improving localization and providing an engine for growth by not just checking a compliance box, but uncovering market needs to unlock innovation. Let’s look at DDO as an example.
History’s reliance on disclosure to drive good consumer outcomes was probably a bit naive.
The Wallis Report on the Australian Financial System (1997) placed a great amount of faith in the market to deliver the right products and services, believing that disclosure (e.g. product disclosure statements and terms and conditions) would fix any problems. Unfortunately, disclosures are not customer-centric and therefore hard to understand. It’s no surprise, then, that 80% of customers do not read PDS’s before purchasing a product or policy. Knowing this fact, misconduct by FIs was rife, eventually leading to a royal commission 20 years later.
The Wallis Report of 1997 could not have imagined a world where information moves at the pace it does today. Social media platforms give consumers a collective voice to praise an organization and take it to lofty heights, or condemn it and bring it down. Although there were some changes made by regulators over the 20 year period, the main takeaway should be that FIs shouldn’t stay still, even if governments and regulators are. It is important to evolve your people, processes, and technology to meet customer expectations, or risk losing market share to new players as we have seen happen. DDO is simply the regulator playing catchup by mandating modern product development processes that are more customer-centric.
The shocking findings from the Royal Commission into misconduct in the Banking, Superannuation, and Financial Services Industry (Hayne Royal Commission 2017–2019) has put significant doubt into the minds of consumers.
DDO can be treated as another compliance project with a focus on designing and implementing a product governance framework that is enough to tick all the right boxes (for now). Or, you could take a step back and think about how to continually evolve your practices, tools, and mindset as customer expectations change. The latter would mean that the benefit of your compliance investment is growth rather than the usual singular benefit of retaining your banking (or other) license.
DDO introduces four Design Obligations and five Distribution Obligations. Issuers of financial products must meet the Design Obligations. Organizations that sell direct to customers must comply with the Distribution Obligations.
There is no silver bullet, but there are great companies such as Productboard that take learnings from over 3500 organizations globally to build product management software that is not only customer-centric, but also provides robust product governance. What’s more, the software continually improves as practices and technology change across the world, meaning that you can keep up with changing customer expectations and stay ahead of governments and regulators.
The four design obligations aim to ensure that products developed provide a real benefit to a group of people (target market).
- Target market determination (TMD): As part of the research phase, data can be gathered from various sources (e.g, survey tools), stored, and tagged within Productboard to gain a deep understanding of customer circumstances (e.g. understanding of product features, capacity to meet financial obligations) and review triggers identified.
- Record keeping: Critical data stored within Productboard can help illustrate TMD and the reasons behind chosen product features (e.g. prioritization scores based on importance to segment, objectives, drivers).
- Assessing the appropriateness of the target market: Integrated customer service systems such as Zendesk and
Intercom enable customer feedback to be reviewed in real-time to determine when an incident triggers a target market review.
- ASIC notification: As all data is stored within Productboard, so issuers can quickly notify ASIC if it becomes aware of a significant dealing.
The five distribution obligations aim to ensure products are marketed to those it benefits and not those who it doesn’t.
- Prohibition of retail product distribution conduct without the target market determination: The Productboard Portal enables issuers to notify distributors that a product is ready for distribution (with a clear TMD). It also enables distributors to suggest and vote on enhancements to improve benefits to TMD.
- Prohibition of retail product distribution if the target market determination may not be appropriate: Data gathered by distributors in the form of integrations with Salesforce and email can help identify where a TMD may be incorrect. Data can be shared securely with an issuer within 10 days.
- Take reasonable steps to ensure distribution is consistent with the target market determination: Integration with tools such as Salesforce enables distributors to align with the target market specified by the issuer.
- Collect, keep and provide distribution information: Integrated customer service systems such as Zendesk and Intercom enable distributors to store and gather data, such as complaints received, within Productboard, so it can be tagged and shared with issuers within 10 day
- Notify the issuer of significant dealings not consistent with the target market determination: All data is stored within Productboard so distributors can quickly notify issuers if it becomes aware of a significant dealing.
Creating fast and effective feedback loops between ASIC, issuers, and distributors using specialist product management software will not only result in better outcomes for consumers and businesses but also help governments and regulators stay up to date with modern practices.