Mystery shopping at domestic retail banks

Executive summary

This report presents the findings and conclusions of a Financial Consumer Agency of Canada (FCAC) mystery shopping exercise conducted in 2019 at 6 of Canada’s largest banks: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank. It follows the 2018 Domestic Bank Retail Sales Practices Review (sales practices review),^{Footnote 1}  which documented FCAC’s finding that a sharp focus on sales was turning bank branches into “stores,” increasing the risk of banks placing sales ahead of customers’ interests. In this instance, mystery shopping was used as a supervisory tool to gather and assess information on current and emerging industry issues and to monitor banks’ levels of compliance with various market conduct obligations.

The goal of the mystery shopping project was to better understand how frontline bank employees sell financial products and services and how consumers experience the sales process. Specifically, FCAC aimed to answer 3 questions:

1. How are financial products and/or services sold to consumers?
2. Is communication (verbal, written, and/or electronic) during the sales process perceived as clear, simple, and not misleading from the perspective of consumers?
3. Are there observable similarities and differences in how different financial products and/or services are sold to consumers with a diverse range of demographic backgrounds?

To answer these questions, FCAC hired a mystery shopping firm to visit 712 bank branches across the country to inquire about chequing accounts and credit cards, and to report on their experiences. The resulting data sheds light on what consumers may experience when shopping for financial products and services. While most shoppers reported experiences that appear to be aligned with FCAC expectations for market conduct, a notable number of shoppers reported concerning experiences that will be explored in greater detail below. FCAC will continue to monitor these important areas for improvement through ongoing supervisory work with regulated entities.

Key findings

At first glance, it is encouraging to see that 74% of shoppers described their overall experiences as positive, but experience ratings only shed light on part of the sales experience. These shoppers tended to cite good customer service, knowledgeable or friendly employees and a pleasant atmosphere as reasons for giving a positive rating. However, consumer satisfaction with the sales experience is not always a reliable indicator of compliance with market conduct obligations. FCAC monitors compliance with these obligations, which helps to promote trust and confidence in the Canadian financial system. Shoppers’ reports indicate they value the information they get from bank employees when assessing their overall experience. Banks should ensure this trust is not misplaced.

Further analysis shows a more complex relationship between shoppers’ overall experience assessments and banks’ sales conduct that warrants additional attention (see key finding 3). Mystery shopping reports revealed sales experiences that raise concerns for FCAC. These concerning sales experiences include encounters where an inappropriate product recommendation was made, information was not provided in a clear and simple manner, or the information was considered misleading. Shops where pressure was exerted or where the employee did not seem knowledgeable or well-trained also fall into this category.

While FCAC found that shoppers who reported concerning sales experiences also tended to rate their overall experience more negatively, this was not always the case. In fact, notable percentages of shoppers still report a positive overall experience even if they experienced a concerning sales experience. The findings also indicate that banks could be doing more to better understand consumers’ needs before making recommendations for appropriate products and services. As of June 30, 2022, the Financial Consumer Protection Framework (FCPF) will require banks to have procedures in place to ensure the products and services they offer are appropriate for their customers.^{Footnote 2}

Finally, FCAC found notable differences in how financial products and services were offered to mystery shoppers of various demographic backgrounds. While there are cases where banks could reasonably be expected to tailor products to the needs of certain demographic groups—bank accounts with lower fees for students or seniors are good examples—in most instances, FCAC would expect to find sales experiences to be broadly consistent for consumers who have similar financial traits (such as income and debt levels) regardless of demographics. These findings indicate that more can be done by banks to ensure that the demographic groups at higher risk are protected from experiencing concerning sales practices.

The following key findings highlight important areas for industry improvement:

1. Product recommendations and employee communication

FCAC observed that in most interactions, shoppers reported that bank employees gave them appropriate recommendations and provided information that was clear, simple and not misleading. However, in 15% of interactions involving chequing accounts and 20% of those involving credit cards, shoppers reported that bank employees recommended products that were not appropriate for their needs. Shoppers also reported that 11% of chequing account interactions and 17% of credit card interactions included information that was not “clear and simple.”

The findings about product recommendations and employee communication indicate that banks could be doing more to understand the needs of consumers and provide appropriate product recommendations. Inappropriate recommendations can indicate a culture where sales are inappropriately prioritized over consumers’ needs and/or compliance with market conduct obligations. This type of culture can motivate employees to offer or sell products that are not appropriate, that they do not fully understand, that are overly expensive or that may contribute to over-indebtedness.^{Footnote 3}

2. Premium credit cards

FCAC observed that 28% of credit card recommendations were for “premium” cards that require a minimum individual income of $60,000+ and/or household income of $100,000+. Of note, FCAC found that 80% of mystery shoppers were not asked about their income at any point when a premium card was recommended. Inquiries about income were similarly low across all credit card shops (79%). Questions about spending habits (number of transactions or purchases, estimated spend amount) were even lower. Only 16% of employees who recommended a premium card asked about spending, compared to 14% across all credit card recommendations. These findings indicate that most bank employees who recommended premium cards did so without gauging whether a shopper met the income requirements or evaluating their spending habits before recommending a premium card.

According to the Code of Conduct for the Credit and Debit Card Industry in Canada, premium cards should only be given to “a well-defined class of cardholders based on individual spending, assets under management, and/or income thresholds...”^{Footnote 4} These cards may come with higher costs or perks that some consumers are not in a position to take advantage of, such as travel benefits. Merchants are also charged more when they accept such cards and may pass these charges on to consumers. Premium cards should only be offered to consumers who are eligible and would benefit from their features and costs.

3. Relationship between concerning sales experiences and overall experience ratings

Mystery shopping reports revealed sales experiences that raise concerns for FCAC. These concerning sales experiences include encounters where an inappropriate product recommendation was made, information was not provided in a clear and simple manner, or the information was considered misleading. Shops where pressure was exerted or where the employee did not seem knowledgeable or well-trained also fall into this category. FCAC found that when shoppers reported a concerning sales experience, they also tended to rate their overall experience at the bank more negatively. For instance, shoppers who reported that employees did not seem knowledgeable and well-trained rated their overall experience as negative in 50% of shops. Only 12% of these shoppers rated their experience as positive.

However, on some measures, a notable percentage of shoppers still reported a positive overall experience despite also recording a concerning sales experience with an employee. For example, 32% of chequing account shoppers and 45% of credit card shoppers who reported that employees provided an inappropriate product recommendation still rated their overall experience as positive.

These findings raise questions about the relationship between customer experience and sales conduct, suggesting that customer satisfaction is not always a reliable indicator of good sales practices. This reinforces the need for banks to use a variety of tools to effectively monitor sales practices^{Footnote 5} in addition to their customer satisfaction surveys, so they can proactively identify concerning sales experiences and compliance issues.

4. Demographic analysis

Finally, FCAC found notable differences in how financial products and services were offered to mystery shoppers of various demographic backgrounds (Appendix 8.1). With few exceptions (for example: chequing account products tailored to certain groups like students, newcomers and seniors), FCAC expects that shoppers of various demographics will have similar sales experiences where recommendations are made based on individual assessments of their specific financial traits and needs. However, the findings show that this may not always be the case, particularly for visible minorities and/or Indigenous persons, younger shoppers, and students. These findings indicate that banks can do more to ensure that the demographic groups at higher risk are protected from experiencing concerning sales practices.

Visible minority and/or Indigenous persons

Compared with other shoppers, those who self-identified as visible minorities and/or Indigenous persons more often reported that:

• product recommendations were not appropriate for their needs
• information was not presented in a clear and simple manner
• they were offered optional products, such as overdraft protection and balance protection insurance

Students

Compared with other shoppers, student shoppers more frequently reported that:

• recommendations were not appropriate for their needs, particularly with cross-sold products
• information was not presented in a clear and simple manner, particularly for credit cards
• employees did not seem knowledgeable and well-trained

Age

Senior shoppers (aged 65+) tended to report better experiences than younger shoppers (aged 18 to 34) or students. The younger shoppers reported more often that:

• recommendations were not appropriate for their needs, particularly for credit cards and cross-sold products
• information was not presented in a manner that was clear and simple, particularly for chequing accounts
• employees did not seem knowledgeable and/or well-trained
• they declined products

While younger shoppers and seniors reported similar frequencies of negative overall impressions, the younger shoppers reported fewer positive impressions and more neutral impressions when compared with seniors.

Relationship with bank

Shoppers who were “new” to a bank reported more negative experiences than those who were already customers, reporting that:

• they were provided clear and simple information less often
• employees tried to overcome their objections to product recommendations more often

Walk-ins versus booked appointments

Shoppers who walked into a branch without an appointment (walk-ins) reported more concerning experiences than shoppers who scheduled appointments with branch employees.

Walk-in shoppers:

• more often viewed product recommendations as inappropriate
• noted less often that the information they received was clear and simple
• stated more often that employees did not seem knowledgeable and well-trained

Shoppers who booked appointments:

• were offered overdraft protection more often

Other demographic and shopper group findings

To a lesser degree, FCAC also found notable findings for other differences between shopper groups, including gender, income, geographic region, language spoken, age, and whether a shopper was a recent newcomer. Notable demographic findings are highlighted in text boxes in the relevant report sections.

Conclusion

As a follow up to FCAC’s 2018 sales practices review, this report provides additional insight into the sale of financial products and services at Canada’s largest banks. It also describes several areas where banks have more work to do to ensure consumers have access to consistent sales experiences that meet market conduct obligations and FCAC’s expectations, including the expectation that banks have a robust set of controls and monitoring tools in place to guard against poor sales practices.^{Footnote 6}

The findings confirm the importance of banks having a comprehensive training program for all staff, and especially for frontline staff that deal directly with consumers. FCAC expects that banks will use their training programs to ensure staff are knowledgeable about the products and services they sell so they can provide consumers with clear, simple information that is not misleading. Banks have a responsibility to ensure frontline staff are effectively trained to communicate clearly and make recommendations that meet consumers’ needs, without pressuring them to accept products they do not need or understand. Employee sales targets and incentives should not conflict with these objectives.

Consumers rely on banks to help them meet their financial goals and FCAC expects that banks will not misplace this trust. Banks are responsible for ensuring compliant sales outcomes that are consistent across channels and over time. While customer satisfaction is an important part of banks’ commitments to their customers, it is not always a reliable indicator of a good sales culture. Monitoring customer satisfaction scores is important but insufficient on its own for detecting and preventing all instances of non-compliance or mis-selling. Banks need to be proactive in identifying and correcting concerning sales practices and should continue to use a variety of tools, including effective complaint handling^{Footnote 7}, to ensure compliance with the market conduct obligations put in place to protect consumers.

This report highlights findings that regulated entities are expected to review and action, as required, to ensure compliance with their market conduct obligations. FCAC will incorporate these findings in its on-going supervision of banks’ sales practices, including their readiness for the FCPF.

This report also points to areas where additional research and review will provide valuable insights. In particular, the move to online and telephone banking has accelerated during the COVID-19 pandemic, bringing with it unique challenges and benefits for consumers and consumer protection. As bank business models continue to shift, mystery shopping, and other research and supervisory tools, will need to innovate to keep pace. In addition to mystery shopping in bank branches, future mystery shopping exercises will benefit from a multi-channel approach to assess how banks comply with market conduct obligations when selling their products.

1 Introduction

Canadians today can bank in ways that would have been unheard of only a generation ago. But despite the move toward digital banking options by both banks and consumers, the bank branch remains a cornerstone of Canada’s banking landscape. During the 2018 sales practices review, FCAC found that a sharp focus on sales was turning branches into “stores,” increasing the risk that banks may place sales ahead of customers’ interests.^{Footnote 8}  While the COVID-19 pandemic has accelerated the migration of consumers to telephone and online banking, how banks sell their products to consumers and comply with their market conduct obligations remains a core concern for FCAC, regardless of banking channel. As banking business models continue to evolve, it becomes even more important for banks to address the risks associated with sales practices and incentive motivations to ensure that consumer interests are given the appropriate priority.

Mystery shopping is one technique that can be used to gain insight about banks’ sales practices. In 2019, FCAC hired an experienced firm to conduct a mystery shopping exercise. Mystery shopping is a form of consumer market research where individuals pose as consumers and use semi-scripted scenarios to interact naturally with employees (in this case, at bank branches). The shoppers are trained to record their observations about their encounters objectively, providing qualitative and quantitative data. Domestic and international financial sector regulators recognize mystery shopping as an effective supervisory technique for learning more about consumers’ sales experiences. Banks also use this tool to assess their staff and the performance of their branches.

The primary research objective of this project was to gain a better understanding of how frontline bank employees sell financial products and services and how consumers experience the sales process. Specifically, FCAC aimed to answer the following questions:

1. How are financial products and/or services sold to consumers?
2. Is communication (verbal, written, and/or electronic) during the sales process perceived as clear, simple, and not misleading from the perspective of consumers?
3. Are there observable similarities and differences in how different financial products and/or services are sold to consumers with a diverse range of demographic backgrounds?

2 Methodology

712 “mystery shops” were completed across Canada to help answer the key questions listed above.^{Footnote 9}  Throughout this report, the term “shop” is used to refer to a unique interaction between a mystery shopper and any bank branch employee they encountered when asking about either a chequing account or a chequing account plus a credit card.

The mystery shopping firm recruited and retained shoppers based on demographic and shopper groups supplied by FCAC (Appendix 8.1), assigned them to bank branches, and provided them with information packages that included semi-scripted scenarios for the shoppers to complete. The shoppers were trained to make discreet observations about their experiences and take note of certain details. Most shoppers’ visits consisted of dropping into the assigned bank and engaging in a single interaction, while some were asked by the bank to book an appointment and return later. Mystery shoppers provided their perspectives by filling out a mixed-method questionnaire that contained both quantitative and qualitative questions (Appendix 8.2).

Fieldwork took place from October to December 2019. A demographically diverse group of shoppers went to cities and towns of all sizes across the country. As with FCAC’s sales practices review, the mystery shops were conducted at Canada’s 6 largest banks: Bank of Montreal, The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and The Toronto-Dominion Bank.

Shoppers visited branches in every Canadian province, which were selected from a list of all known bank branches in Canada.^{Footnote 10}  The sample was designed to provide greater insight into what banking looks like across consumer demographic groups and in a wide range of community sizes and regions across Canada. While the results are not directly proportional to the population or distribution of banks, they show a wider range of sales practices and shopper experiences than a strictly population-based sample would have. A breakdown of regions and population centres included in this project can be seen in Appendix 8.3.

All findings described in this report are based on FCAC’s analysis of shoppers’ descriptions of their experiences with bank employees during sales interactions. This report describes key findings and provides additional analysis and context where appropriate. The goal of this exercise was to conduct research on how consumers experience banking across Canada. Because the sample is not directly representative of the population, the report restricts its inferences to the sample of mystery shoppers, as well as the financial products and banks under review.

3 Shoppers’ sales experiences with product or service recommendations

To better understand how financial products and/or services are sold, FCAC asked mystery shoppers about their experiences with employees at the branches they visited. Shoppers were asked:

• what products and services employees recommended to them
• how and why employees recommended products, including the use of cross-selling tactics
• whether the shoppers felt the product recommendations were appropriate for them

3.1 Chequing account and credit card recommendations

When shoppers visited branches and asked about chequing accounts and credit cards, employees offered them a range of products and a variety of reasons for their recommendations. Shoppers were instructed to record why employees recommended particular chequing accounts or credit cards to them. The top 3 reasons for offering these products are shown below.^{Footnote 11} 

Top 3 reasons why bank employees recommended a product

Shoppers also assessed whether they viewed employees’ recommendations as appropriate for their needs, and why or why not. These assessments were conducted entirely by shoppers and based on their own understanding and preferences of what was, or was not, appropriate for their needs. Most (85% of those shopping for chequing accounts and 80% of those shopping for credit cards) said the recommendations they received were appropriate. The top 3 reasons why shoppers assessed recommended products as appropriate for their needs are listed below.^{Footnote 12} 

Top 3 reasons why shoppers found product recommendations appropriate

The 15% of chequing account shoppers and 20% of credit card shoppers who said the recommendations they received were not appropriate for their needs gave various reasons for this, shown below.

Top 3 reasons why shoppers found product recommendations inappropriate

The shoppers who noted that chequing account and credit card recommendations were not appropriate represented a variety of demographic and shopper profiles. Box 1 highlights notable findings of how shoppers perceived the appropriateness of the recommendations they received. 

3.2 Premium credit card recommendations

FCAC’s 2018 sales practices review found that banks tend to assign greater value to more profitable and complex financial products and services, which may lead to mis-selling and poor consumer outcomes. For example, the 2018 sales practices review identified that selling premium credit cards helped employees achieve sales targets or branch goals.^{Footnote 13}  This elevates the risk that employees may be motivated to recommend the premium cards even when they are not an appropriate product for the consumer’s needs.

In this study, FCAC observed that 28% of all credit card recommendations made during mystery shops were for “premium” cards that require a personal income of $60,000 or more and/or a minimum household income of $100,000. While premium credit cards offer valuable features to some consumers, the required minimum income and relatively higher annual fees mean they are not appropriate for all consumers (see below). Furthermore, to comply with the Code of Conduct for the Credit and Debit Card Industry in Canada, premium card recommendations need to consider whether consumers’ stated needs, spending habits and income are well-matched to the product.^{Footnote 14}

The mystery shopping data show that 80% of shoppers who were offered premium credit cards were not asked about their income at any point in the conversation. Inquiries about income were similarly low across all credit card shops (79%). In 35% of the shops where premium cards were recommended, shoppers would not have met the minimum income requirement. Questions about spending habits (number of transactions or purchases, estimated spend amount) were even lower. Only 16% of employees who recommended a premium card asked about spending, compared to 14% across all credit card recommendations.

These findings indicate that most bank employees who recommended premium cards did so without gauging whether a shopper met the income requirements or spending habits before recommending a premium card. When FCPF requirements are in force, banks will be required to have procedures in place to regularly train employees to know their customer, know their range of cards, and assess if a premium card is appropriate for the consumer before making a recommendation. This assessment should include gathering relevant information from the consumer, including income. When making a card recommendation, consumers should be provided with the necessary information to decide whether the premium card suits their needs.

3.3 Cross-selling and other recommendations

During shops, most employees limited their recommendations to the shopper’s stated reason for visiting (obtaining a chequing account or a chequing account and credit card). However, in 28% of shops, employees offered shoppers products or services beyond the stated purpose for their visit. This practice is referred to as cross-selling.

While cross-selling can yield positive outcomes for consumers as they gain knowledge of useful products and services, it can also result in added pressure to purchase unwanted or inappropriate products or services, especially when the consumer views the employee as an expert or trusts their suggestions.^{Footnote 15}  This is particularly true when bank employees cross-sell products without making a reasonable effort to assess consumer needs. FCAC has previously identified cross-selling as an area where there is a higher risk of mis-selling and breaching market conduct obligations.^{Footnote 16} 

The cross-selling observed throughout the exercise included additional recommendations for credit cards, investments, savings accounts, as well as optional products or services, such as overdraft protection and credit card balance protection insurance (see section 3.4 for details). Of the 28% of shoppers who were offered 1 or more additional products or services:

• 21% were offered overdraft protection
• 19% of shoppers inquiring only about a chequing account were offered a credit card
• 8% were offered registered accounts (such as tax-free savings accounts or registered retirement savings plans) and/or investments (mutual funds)
• 6% of credit card shoppers were offered credit card balance protection insurance
• 5% were offered savings accounts

The mystery shopping data reflect both positive and negative perceptions of cross-selling. Of the shoppers who were offered unsolicited additional products or services, most (80%) described the recommendations as appropriate, noting that the employees appeared to offer sound advice and informed recommendations. However, the remaining 20% felt the additional recommendations were inappropriate for their stated needs. These shoppers noted that they did not need (14%) or want (6%) the additional recommended products or did not receive/have enough information to make a decision (14%).

FCAC expects banks to ensure all employees are effectively trained to communicate clearly with consumers to ensure that the products they recommend, including those that are cross-sold, are appropriate for consumers’ needs. Banks’ sales practices, employee sales targets and employee incentives should reflect these objectives.

Box 2 highlights notable findings from the demographic and shopper profiles who were offered additional products or services beyond the stated purpose of their visit.

3.4 Overdraft protection and balance protection insurance

FCAC asked shoppers to collect detailed information about two optional products or services if they were offered by employees: overdraft protection and credit card balance protection insurance (a type of creditor insurance). FCAC asked specifically about these optional products because they can be costly for consumers. The 2018 sales practices review also made specific observations about how these products are sold, noting that banks use computer algorithms to prompt employees to sell them. Such models may result in the selling of unwanted or inappropriate products or services, particularly when bank employees are responding to sales targets and do not make appropriate efforts to assess consumer needs.^{Footnote 17}  Internationally, financial supervisors have echoed these concerns, specifically with regard to overdraft protection and creditor insurance.^{Footnote 18} 

In this study, 21% of mystery shoppers were offered overdraft protection. They reported that the discussions focused mainly on key overdraft costs and features (fees/rates, limits, etc.). In 5% of overdraft discussions, shoppers noted that employees did not fully explain the product or that they had to probe for more information. A total of 6% of shoppers said they were offered credit card balance protection insurance. In these interactions, employees mostly discussed the insurance as a form of protection for those who carry a balance. Several shoppers noted they were told about fees and that the product was optional, but the sample was too small for detailed analysis.

Banks must comply with all relevant market conduct obligations, even when offering or selling optional products and services, such as credit balance protection insurance and overdraft protection. Once the FCPF is in force, banks will be required to provide separate agreements for optional products and services.

Box 3 highlights notable findings for demographic and shopper profiles and experiences with offers of overdraft protection and credit card balance protection insurance.

3.5 Conclusions regarding shoppers’ experiences with recommendations

While the majority of shoppers reported appropriate recommendations, nearly 1 in 6 chequing account shoppers (15%) and 1 in 5 credit card shoppers (20%) found employees’ product recommendations to be inappropriate. What’s more, the majority of shoppers reported that employees recommended premium credit cards without first obtaining key information about the shopper. Set against the context of rising indebtedness in Canada, it is particularly troubling that 1 in 5 shoppers reported an inappropriate credit card recommendation.

However, shoppers who booked appointments reported inappropriate recommendations less often than those who did not (walk-in shoppers). This trend held true for chequing account and credit card recommendations, as well as cross-selling offers. This finding suggests that the additional time taken to review shoppers’ needs during booked appointments may result in more appropriate recommendations; however, additional research would be needed to confirm this.

3.6 FCAC expectations related to product or service recommendations

Findings from the mystery shopping exercise reinforce FCAC’s expectations regarding product and service recommendations. Inappropriate recommendations can lead consumers to sign up for products or services that they do not understand or need, are more expensive than appropriate alternatives, and may contribute to over-indebtedness. Inappropriate recommendations may also indicate a poor sales culture where processes, procedures, controls, or training are not in place to provide consumers with appropriate recommendations.

Given these expectations, banks should:

• Effectively train employees to communicate clearly with consumers to ensure that the products they recommend, including those that are cross-sold or optional, are appropriate for consumers’ needs. Policies and procedures related to sales practices, as well as employee sales targets and incentives, should reflect these objectives.
• Train employees to inquire about key information (like income and spending habits) to assess whether a premium card is appropriate for the consumer before making such a recommendation. Consumers should be provided with the necessary information about costs, features, and limitations to decide whether the premium card suits their needs and budget.
• Review the demographic findings and proactively assess what actions are required to ensure that all consumers are protected from receiving inappropriate product and services recommendations, particularly the demographic groups at higher risk.
• Prepare for the FCPF that will come into force on June 30, 2022. Under the framework, banks are required to establish and implement policies and procedures to ensure that the products and services they recommend are appropriate for consumers. Banks are required to implement these policies and procedures in all sales situations.

4 Communication during sales interactions

Consumers rely on bank communications to make informed decisions about their financial futures. The requirement for clear, simple and not misleading communication is a key federal financial consumer protection obligation. The following section looks at communication during certain moments of the sales process to assess whether the shoppers in our study:

• found employee communication to be clear, simple and not misleading
• were asked to provide express consent when signing up for a product or service
• felt pressured to sign up for an offered product or service
• declined a product, and if so, how many times

4.1 Clear, simple and not misleading communication

Ensuring bank communications (verbal, written and/or electronic) are presented to consumers in a way they can understand clearly is a cornerstone of financial consumer protection.^{Footnote 20}  Banks are legally required to communicate in a manner that is clear, simple and not misleading. These disclosure requirements are further enhanced under the FCPF.^{Footnote 21}  To look at how banks are meeting these obligations, shoppers were asked to assess whether the verbal and/or written information provided to them during the sales process was clear, simple and not misleading.^{Footnote 22}  Shoppers were asked to first report whether the employee provided information in a manner that was clear and simple. They reported separately on whether information was misleading.

According to shoppers, 89% of employees provided clear and simple information when discussing chequing accounts. The figure was slightly lower for credit cards, at 83%. Key reasons for identifying an interaction with an employee as clear and simple included the use of easy to understand and plain language throughout the discussion, thorough explanations of product features, and the use of visual aides, such as websites, brochures or other printed material.

On the other hand, 11% of chequing account shoppers and 17% of credit card shoppers indicated that employees did not provide clear and simple information. These shoppers noted that the employee was not straightforward with their explanation of key features, the employee spoke too fast, or that shoppers had to probe for more details after receiving inadequate information.

According to shoppers, employees provided misleading information in 6% of chequing account interactions and 5% of credit card interactions. These shoppers most often referred to explanations of fees, available product options, terms and conditions, or features and product rewards in their explanations of why information was misleading.

Box 4 highlights notable findings from the analysis of whether shoppers found information provided by employees to be clear and simple. FCAC did not observe noteworthy differences among shoppers who found information to be “misleading.”

4.2 Express consent

Obtaining consumers’ express consent through communication that is clear, simple, and not misleading is an essential obligation for banks. Express consent obligations assist consumers in making better-informed decisions about the products and services they sign up for. In March 2017, FCAC published compliance bulletin B-5 Consent for new products or services to reiterate its expectations about express consent requirements as set out in the Negative Option Billing regulations.^{Footnote 23}  In the 2018 sales practices review, FCAC found that banks generally have controls in place to ensure their employees obtain a consumer’s consent when they sell a new product or service. However, FCAC also found that controls were not adequate to ensure that the written or verbal communication used to obtain consumer consent is clear, simple and not misleading. FCAC also noted that these controls are typically weaker in the branch channel when compared to call centre operations.^{Footnote 24}

During the mystery shopping exercise, shoppers were not required to sign up for any products, but were permitted to do so if they chose, and were trained to collect data on the process. Their training materials defined express consent as clearly agreeing in writing, electronically or orally to sign up for a financial product or service.

A total of 13 shoppers signed up for chequing accounts, while 2 signed up for credit cards. All 15 indicated that they provided their express consent when doing so. Express consent for chequing accounts was provided in several ways, including through verbal consent, written consent and electronic signatures. Some shoppers noted that they provided express consent during their shops to reactivate or open an account but did not specify which method they used.

4.3 Declining a product

Prior to completing their shops, mystery shoppers were trained by the hired firm to decline products if they were no longer interested in discussing them. This included declining offers for products they had originally inquired about (such as a chequing account or credit card) in addition to any other products that may have been discussed as part of their conversation with a bank employee, such as overdraft protection, credit card balance protection insurance or investments. When declining products or services, shoppers were asked to note how employees responded. In total, 29% of shoppers reported declining a product. Among them:

• 60% declined a product or service once
• 40% declined a product or service twice or more

Shoppers who declined products were asked to provide specific information about how employees attempted to overcome their objections. Shoppers described various methods to overcome their objections, noting that employees were not simply repeating offers. The most common methods for attempting to overcome an objection were:

• strongly suggesting shoppers book follow-up appointments
• attempting to sign shoppers up right away
• persistently offering brochures, materials for review or referrals to bank websites

Box 5 highlights notable findings for the demographic and shopper profiles and experiences when declining products.

4.4 Sales pressure

Mystery shoppers were trained to report whether they felt pressured by bank employees to consider or sign up for products. In its 2018 sales practices review, FCAC found that retail banking culture was predominantly focused on selling products and services, which can elevate the risk that employees will place undue pressure on consumers. In the mystery shopping study, shoppers reported feeling pressured to sign up or consider a product or service in just 3% of interactions. These shoppers gave the following reasons for experiencing pressure:^{Footnote 25}

• 59% said an employee was pushy or aggressive about selling a product or service (13 shops)
• 45% said an employee rushed them to make a decision (10 shops)
• 27% said an employee started the sign-up process before they had agreed to a product (6 shops)

However, the low percentage of reported sales pressure does not tell the full story. Although some objective definitions and models of “sales pressure” exist, consumer perceptions of sales pressure are not well understood. Existing research shows that the concept of sales pressure is situational and subjective.^{Footnote 26}  More research is necessary to better understand consumer experiences and reactions to pressure. For this project, FCAC collected shoppers’ assessments of what pressure looks like, and purposefully did not provide a definition of “sales pressure.” Instead, shoppers were asked to characterize such experiences in their own words (Appendix 8.2).

FCAC’s analysis suggests that not all shoppers would define “pressure” in the same way or agree on what it looks like. For instance, some shoppers reacted negatively to being pushed for a follow-up appointment while others characterized the same behaviour as an effort to provide valuable advice. In other instances, shoppers who indicated being pressured described employees as “aggressive” or “pushy” for making repeated offers for products.

As a potential indicator of pressure, FCAC also looked at the shoppers who had to decline products twice or more to assess whether they felt pressured (see above). Here, FCAC found that 12% of all shoppers noted that they were offered products or services at least twice, and that some employees explicitly attempted to overcome shoppers’ attempts to decline these offers. Despite these reports, many in this group did not report feeling pressured. This held true even in some situations where shoppers reported that employees strongly suggested booking follow-up appointments, attempted to sign them up for products right away, or persistently offered materials for review. Yet, FCAC also found that shoppers who reported feeling pressure cited these same behaviours. This finding underscores that additional research is needed to better understand how consumers experience pressure, acknowledging that pressure can mean different things to different people in different contexts.

FCAC also found that shoppers who reported concerning sales experiences, such as experiencing pressure (see section 5 for details), also tended to rate their overall experience as negative. However, this was not always the case, and many shoppers still rated their overall experience as positive even if their shop included a concerning sales experience. For example, nearly 41% of shoppers who reported pressure also rated their overall experience at the bank as positive.

Shopper reports confirmed that a great deal of trust is placed in the information provided by banks and bank employees. This trust can be damaged when consumers face sales pressure when making decisions about their financial products and services. The findings on sales pressure indicate that shoppers also have varied interpretations and reactions regarding pressure that need to be reconciled in banks’ monitoring of sales practices. When left unchecked, sales pressure can lead to poor outcomes for consumers (e.g. inappropriate or unnecessary product recommendations) and for banks (e.g. mis-selling, breaches of market conduct obligations). FCAC expects that banks will not abuse consumers’ trust and diligently train and monitor frontline staff to ensure consumers are getting the information they need without facing sales pressure.

4.5 Conclusions regarding communication

While FCAC was encouraged to find that few shoppers reported feeling pressured, and that all shoppers who signed up for a product provided their express consent, there is room for improvement in the clarity and simplicity of information employees provided. Roughly 1 in 10 (11%) chequing account shoppers and nearly 1 in 5 (17%) credit card shoppers indicated that employees did not provide clear and simple information. While fewer shoppers reported misleading information (6% of chequing account interactions and 5% of credit card), these shoppers viewed key information for decision making as misleading (e.g. explanations of fees, available product options, terms and conditions, and features or product rewards).

The findings related to pressure, overcoming objections, communication, and express consent are complex, indicating that shoppers have diverse understandings of sales pressure and that their interpretations may be situational. When left unchecked, sales pressure can lead to poor outcomes for consumers (e.g. inappropriate or unnecessary product recommendations) and for banks (e.g. mis-selling, breaches of market conduct obligations). Regulators, banks, and other researchers should do more research to better understand this complex relationship, and how to safeguard against poor consumer outcomes during the sale of financial products and services.

As banks look ahead to the enhanced disclosure requirements under the FCPF^{Footnote 27} , they should consider these findings on communication when reviewing their policies, procedures, processes, and controls, and when testing materials with consumers. Banks are legally required to provide all consumers with information that is clear, simple, and not misleading, regardless of channel, in a manner that does not pressure consumers to take products they do not need, nor fully understand.

4.6 FCAC expectations related to communication during sales interactions

The findings from this exercise reinforce legislative obligations and existing FCAC expectations about communication during sales interactions. Given these expectations, banks should:

• Meet existing legislative obligations to communicate all information provided during the sales process in a manner that is clear, simple and not misleading, with particular attention paid to seeking consent for a new product or service.
• Meet existing legislative obligations to obtain express consent and to not pressure consumers to take products they do not need, nor fully understand.
• Ensure that sales targets and incentives support employee compliance with banks’ market conduct obligations that are designed to avoid the risk of mis-selling.
• Work to better understand the complex relationship between pressure, overcoming objections, communication and obtaining express consent, and what additional safeguards may be needed to reduce poor consumer outcomes.
• Review the demographic findings and proactively assess how banks can meet expectations about communication during sales interactions for all consumers.
• Ensure policies, procedures, processes and controls comply with enhanced communication and disclosure obligations under the FCPF, and pre-test communications materials with consumers.

5 Impressions about employees and overall experience

In 2018, FCAC found that banks viewed organizational culture as a key control for mitigating the risks associated with sales practices. Banks also relied partly on good customer satisfaction scores to illustrate the soundness of their sales culture.^{Footnote 28}  To better understand the relationship between consumer satisfaction and compliance with market conduct obligations, FCAC asked mystery shoppers about their general impression of employees and overall experience at the bank branches they visited. Shoppers were asked to elaborate on the following questions:

• Did bank employees seem knowledgeable and well-trained?
• Overall, how did shoppers feel about their interactions at the bank?

This section describes shoppers’ responses to these questions. Overall, the findings suggest that shoppers value customer service-related elements of sales interactions, such as employee confidence and knowledge, professionalism, rapport, and friendliness. However, FCAC is concerned about reports of employees lacking product knowledge, failing to fully answer shoppers’ questions, and failing to proactively seek information about shoppers’ spending habits, financial needs and goals. As with sales pressure (see above), the findings raise questions about the relationship between customer experience and sales conduct, suggesting that customer satisfaction is not always a reliable indicator of good sales practices.

5.1 Employee knowledge and training

In 86% of shops, shoppers indicated that the employees they interacted with seemed knowledgeable and well-trained, while 14% of shoppers responded otherwise. The top 3 reasons for positive and negative perceptions of employee knowledge and training are listed below.

Top 3 reasons why shoppers thought employees seemed knowledgeable and well-trained

1. They were generally knowledgeable, confident, and well-trained about the products and/or services the shopper inquired about (61%).
2. They were professional, patient, friendly and polite throughout interaction (15%).
3. They answered the shopper’s questions and explained everything about the products and/or services they inquired about (11%).

Top 3 reasons why shoppers thought employees did not seem knowledgeable and well-trained

1. They struggled to answer the shopper’s questions and/or did not answer them (36%).
2. They did not appear interested in the shopper’s questions or situation (29%).
3. They lacked specific knowledge about the products and/or services the shopper inquired about (26%).

Box 6 highlights notable findings by demographic and shopper profiles for perceptions of whether employees appeared to be knowledgeable and well-trained.

5.2 Overall impressions of interactions

Shoppers were asked to rate their overall impressions about their branch interaction as positive, neutral or negative. They reported an overall positive interaction in 74% of shopper interactions, noting good customer service, knowledgeable or friendly employees and a good atmosphere.

Another 17% of shopper interactions were rated as neutral. Shoppers reporting a neutral experience cited a range of mixed experiences that may typically be considered both positive and negative. Generally, these referred to employees who had difficulty answering questions, provided inadequate information or did not ask about personal habits or preferences. Finally, 9% of shoppers reported negative interactions, reporting that employees provided inadequate or inaccurate information or struggled to answer shopper questions.

As noted above, shoppers that reported concerning sales experiences also tended to rate their overall experience with bank employees more negatively. Concerning sales experiences include shops where shoppers report that they were provided with an inappropriate product recommendation, information that was not clear and simple, or misleading information. Shops where mystery shoppers reported feeling pressured or that the employee did not seem knowledgeable or well-trained also fall into this category. For instance, shoppers who reported that employees did not seem knowledgeable and well-trained rated their overall experience as negative in 50% of shops. Only 12% of these shoppers rated their experience as positive.

Despite this tendency, notable percentages of shoppers still report a positive overall experience even if they experienced a concerning sales experience. For example,

• 32% of chequing account shoppers and 45% of credit card shoppers who reported that employees provided an inappropriate product recommendation still rated their overall experience as positive.
• 27% of chequing account shoppers and 39% of credit card shoppers who reported they were provided with misleading information also rated their overall experience as positive.
• 60% of shoppers who reported that employees recommended inappropriate additional products beyond the stated purpose of their visit still rated their overall experience as positive (see Appendix 8.4 for full details).

These findings raise questions about the relationship between customer experience and sales conduct, suggesting that customer satisfaction is not always a reliable indicator of good sales practices. To ensure they are proactively identifying concerning sales experiences and effectively monitoring sales practices^{Footnote 29} , banks should ensure they use a range of monitoring tools in addition to measuring customer satisfaction.

Box 7 highlights notable findings by shopper demographic and profile in an analysis of shoppers’ perceptions of the overall quality of their branch visit.

5.3 Conclusions regarding impressions of employees and overall experience

With nearly 1 in 3 shoppers citing employees’ knowledge as a reason for an overall positive interaction rating, it is clear that shoppers value the information and recommendations that bank employees provide. Knowledgeable employees that can match appropriate products and services to consumer needs are essential to ensure that all consumers receive information that is clear, simple, and not misleading during sales interactions. Consumers require informed and accurate assessments of costs, terms and conditions, benefits, and drawbacks to make better informed financial decisions. Banks must communicate clearly and simply and should take seriously the responsibility to provide accurate information and make appropriate recommendations.

The findings also raise important questions about the relationship between customer experience and sales conduct. While shoppers that reported concerning sales experiences also tended to rate their overall experience more negatively, notable percentages of shoppers still reported a positive overall experience after experiencing a concerning sales experience. The findings indicate that a singular focus on customer satisfaction scores may lead to poor outcomes for consumers and continues to be insufficient for ensuring full compliance with market conduct obligations. Considering the importance banks have historically placed on customer satisfaction scores as a partial view into the soundness of their sales culture, further research will be necessary to better understand how customer service elements may influence consumers’ decisions to sign up for financial products and services.

5.4 FCAC expectations related to employee knowledge, training and consumer experience

Findings from the mystery shopping exercise reinforce FCAC’s existing expectations that banks:

• Proactively identify concerning sales experiences and effectively monitor sales practices by using a range of monitoring tools in addition to their customer satisfaction surveys. Bank expectations for customer service and sales goals should not take priority over meeting market conduct obligations and consumer needs.
• Ensure all staff are comprehensively trained to knowledgably sell financial products and services that respond to consumers’ stated needs. Employees should be able to respond to consumer questions as needed and do their due diligence to ensure consumers understand the products they sign up for.
• Review the demographic findings and proactively assess whether employee training programs can account for Canadians’ diverse needs during sales experiences.
• Implement the FCPF, which includes an obligation to ensure that employees who offer or sell products or services will be trained with respect to the policies and procedures that banks have established to comply with relevant consumer provisions.^{Footnote 30}  Front line employees who interact with consumers should be prioritized when conducting this training.

6 Conclusions

Through this mystery shopping exercise, FCAC gained valuable insight into banks’ sales practices and what consumers may encounter when shopping for financial products and services at Canada’s largest banks. While the data show that shoppers report largely positive experiences, FCAC found that shopper satisfaction ratings are not always a reliable indicator of good sales practices, and that banks could be doing more to effectively monitor the concerning sales experiences identified in this report.

This report highlights findings that regulated entities are expected to review and action, as required, to ensure compliance with their market conduct obligations. In summary, FCAC observed the following notable findings related to the research questions that guided this project:

Research question #1: How are financial products and/or services sold to consumers?

While most shoppers reported experiences that appear to be aligned with FCAC expectations for market conduct, notable percentages of shoppers reported concerning experiences that have been explored throughout this report.

1. Shoppers reported low instances of feeling pressured. There were no reported instances where express consent was not obtained. However, the data reinforces other research that suggests “sales pressure” can be situational and subjective.
2. Shoppers generally reported positive interactions when they engaged bank employees with the provided scenarios on chequing accounts and credit cards. Most found that their interactions led to appropriate recommendations.
   1. However, 15% of chequing account interactions and 20% of credit card interactions led to recommendations that shoppers did not find appropriate for their needs. 20% of shoppers who were cross-sold products said they were inappropriate for their stated needs.
3. FCAC identified areas of concern relating to the way certain products and services were offered to consumers, including “premium” credit cards and optional products like overdraft protection and credit card balance protection insurance.

Research question #2: Is communication (verbal, written, and/or electronic) during the sales process perceived as clear, simple, and not misleading from the perspective of consumers?

FCAC is encouraged to find that shoppers reported few instances of employees providing misleading information. However, work remains to be done in ensuring that all consumers are provided with clear and simple information (verbal, written, or electronic) that will help them make better informed financial decisions.

4. Shoppers noted that in 11% of chequing account interactions and 17% of credit card interactions, bank employees provided information in a manner that was not “clear and simple.”
5. Across chequing account interactions, shoppers reported receiving misleading information in 6% of interactions. For credit card shops, the figure was 5%.

Research question #3: Are there observable similarities and differences in how different financial products and/or services are sold to consumers with a diverse range of demographic backgrounds?

With few exceptions (for example: chequing account products tailored to certain groups like students, newcomers, and seniors), FCAC expects that shoppers of various demographics will have similar sales experiences, based on individual assessments of their specific financial traits and needs. The mystery shopping findings indicate that more can be done by banks to ensure that the demographic groups at higher risk are protected from experiencing concerning sales practices.

Certain patterns were particularly noteworthy:

• Differences between age cohorts suggest that seniors tend to have more positive experiences at banks, especially compared to younger age groups (18 to 34). These findings are consistent with those of FCAC’s 2019 Survey on Banking of Canadians, which found, among other things, that seniors reported more positive relationships with their banks, and banked in person more often than younger consumers.^{Footnote 31} 
• Visible minority and/or Indigenous shoppers reported that recommendations were less often appropriate and less clear and simple compared to shoppers who did not identify as such. They also noted being offered optional products and/or services, such as overdraft protection and balance protection insurance, at higher frequencies.
• Students reported more than non-students that employees’ recommendations were inappropriate, that the information provided was not clear or simple, and that the employees they spoke with did not appear to be knowledgeable or well-trained.
• Compared with shoppers who had existing relationships with the banks they visited, shoppers who were new to a bank more often reported that the information provided was not clear or simple, and that employees attempted to overcome their objections.
• Walk-in shoppers reported different experiences than shoppers who scheduled appointments with branch employees. For instance:
  • Walk-in shoppers more often viewed product recommendations as inappropriate.
  • Walk-in shoppers noted less often that the information provided to them was clear and simple.
  • Walk-in shoppers stated more often that employees did not appear to be knowledgeable and well-trained.
  • Shoppers who booked appointments were offered overdraft protection more frequently.
  • Shoppers who booked appointments declined a product offer at higher frequencies.

7 A look forward

Canadians are protected by market conduct obligations related to disclosure and the sale of financial products and services by banks. FCAC protects financial consumers by overseeing federally regulated financial entities’ compliance with these legislative obligations, codes of conduct and public commitments. FCAC is also mandated to protect financial consumers by monitoring trends and emerging issues and examining industry practices that may impact the delivery of financial products and services.

Consumer research methodologies, like mystery shopping, provide invaluable perspectives on how consumers experience the sales process. FCAC’s findings are being used to better supervise banks, expose gaps between expectations and practices, shed light on demographic differences in how Canadians experience branch banking, shape best practices throughout the banking industry and ultimately inform evidence-based policymaking. The findings are also supporting FCAC’s work to educate financial consumers and promote awareness of their financial rights and responsibilities.

The collected data gives FCAC insights into how consumers experience the sales process and what they value when visiting a branch to inquire about products or services. These mystery shopping interactions also provided FCAC with a greater evidence base for how consumers define, in their own words, concepts such as “clear and simple” information, whether an interaction is misleading, what pressure does or does not feel like, and more. While the goal of this exercise was to conduct an exploratory assessment of how consumers experience banking across Canada rather than producing generalizable results, future exercises could use this work as a baseline.

These findings also provide banks with valuable insights to enhance compliance and help banks design sales models that work for consumers. FCAC would encourage the financial industry to use mystery shopping to regularly monitor compliance with consumer protection obligations.

The results presented in this report are a snapshot of retail banking in Canada at a particular moment in time. Moving forward, the way consumers experience banking will change, for a variety of interconnected reasons, including technological innovation brought on by digital and mobile options, consumer preferences, and demographic changes. What’s more, the COVID-19 pandemic has accelerated this shift, out of necessity, towards online and telephone banking. As government, industry and Canadians reimagine what banking looks like, FCAC will continue to monitor sales practices and conduct innovative research on emerging trends and issues.

8 Appendices

8.1 Demographic and shopper profiles

8.2 Questionnaire

Please note:

• You are not allowed to bring and complete the questionnaire while you conduct your shop.
• Please remember you are an impartial party, and are only to speak to events that occur during the shop.

Section 1: Shop details

Have you verified the assigned bank branch’s hours and location prior to the shop?

• Yes
• No

Shop scenario

• Shop scenario:
  • Inquired about a chequing account [Programming: show sections 2,3,5]
  • Inquired about a chequing account and credit card [Programming: show sections 2,3,4,5]
  • Signed up for a chequing account [Programming: show sections 2,3,5]
  • Signed up for a chequing account and credit card [Programming: show sections 2,3,4,5]
• Date of shop:
  • Time in:
  • Time out:
• Day of shop:
  • Sunday
  • Monday
  • Tuesday
  • Wednesday
  • Thursday
  • Friday
  • Saturday

Address of branch

• Street address:
• City:
• Province:
• Postal code:

In what language was the shop completed? (Select 1.)

• English
• French
• A mix of French and English

Q1. Which bank did you go to complete your mystery shop?

• TD Canada Trust (TD)
• Canadian Imperial Bank of Commerce (CIBC)
• Bank of Nova Scotia (Scotiabank/BNS)
• Royal Bank of Canada (RBC)
• National Bank of Canada (NBC)
• Bank of Montreal (BMO)

Q2. Are you a “new” or “existing” customer for this scenario?

• New
• Existing

IF Q2 = EXISTING THEN ASK Q2A

Q2a. What is your existing banking relationship with this bank? Select all that apply.

• Bank account
• Mortgage
• Investment
• Car loan
• Student loan
• Line(s) of credit
• RRSPs
• RESPs
• Mutual funds
• Other

Q3. Please indicate how you obtained your appointment:

• Walk-in
• Scheduled appointment before going to branch
• Scheduled appointment in person at the branch and returned at a later date

Section 2: Demographic questions

Q4. What is your gender?

• Male
• Female
• Please specify:

Q5. Do you identify as a visible minority and/or an Indigenous person?

• Yes
• No

Q6. Were you born in Canada?

• Yes
• No

Q6a. [If Q6 = No] If you were not born in Canada, have you obtained landed immigrant and/or permanent residence status in the past 2 years?

• Yes
• No

Q6b. [If Q6A = No] If you were not born in Canada, are you pretending to have received landed immigrant and/or permanent residence status in the past 2 years for the purposes of this shop?

• Yes
• No

Q7. Are you currently enrolled full-time in a post-secondary institution?

• Yes
• No

Q7a. [If Q7 = No] Are you pretending to be enrolled full-time in a post-secondary institution for the purposes of this shop?

• Yes
• No

Q8. How old are you (as of the date of the shop)?

• Please specify

Q9. Which of the following categories best describes your total individual income before taxes?

• Under $20,000
• $20,000 to just under $40,000
• $40,000 to just under $60,000
• $60,000 to just under $80,000
• $80,000 to just under $100,000
• $100,000 to just under $150,000
• $150,000 and above
• Prefer not to answer

Section 3: Chequing accounts

**Questions 11a–d are to be displayed as a table in the programmed survey (see below).

IF respondents answer a second, third or fourth open end in Q10, then another table as shown above will appear on a second page.

Section 4: Credit cards

**Questions Q20a-d are to be displayed as a table in the programmed survey (see below).

IF respondents answer a second, third or fourth open end in Q19, then another table as shown above will appear on a second page.

Section 5: General impression

8.3 Regional sampling plan

^{a b}Based on 2017 Statistics Canada Census data. Please note FCAC further disaggregated community sizes to add additional categories.

8.4 Relationship between concerning sales experiences and overall experience ratings