Could An EU Contract Law Catalyse A Single Market?

Not content with the dog's breakfast of European consumer and retail finance directives, the European Commission now wants to harmonise all contract law in the European Union.

The latest fry-up is yet another futile attempt by the EC to catalyse cross-border retail markets of the same scale as national markets within the EU. This is spawned partly by a dogmatic interpretation of single market policy. But it also reflects the difference between the common law view of the world (do anything until the government says 'stop') with the civil law view (wait for the government to tell you how it can be done).

I'm an avid fan of cross-border markets, but long experience and the EC's own research has shown that they can't simply be mandated. Regulation is the least significant of the numerous barriers to cross-border retailing. Cooking up a bunch of extra regulation that doesn't solve a real problem merely adds legal costs for everybody to no end. Or worse: it's ironic that the EC's changes to VAT on electronic services from 2015 actually removed a significant driver for firms to structure their activities in a way that boosted cross-border e-commerce in the first place.

When will this expensive, Quixotic tinkering end?

Well, economic reality may be pointing away from a single European market of the scale envisaged by the EC. Some describe the north-south divergence in the EU and others herald a return to national currencies, or at least regional versions of the Euro.

But if, as I suspect, this latest Green Paper is intended as a frantic signal that the single market is not dead, there'll be plenty more such concoctions before the whole thing finally comes apart at the seams.

The End Of Cheap Travel?

I've been an avid supporter of low cost travel operators, but recently I've detected a marked change in their attitude, and some fairly hair-raising pricing ploys. Perhaps it started with some of Ryanair's tactics, but I'm afraid it may not have stopped there.

My recent experience seems to bear out Stelios's complaint that easyJet no longer deserves to use the word "easy". Not content with a 2.5 hour delay on the way to Mallorca because of the need to change crew, easyJet cancelled the return flight for 'operational reasons', according to the unapologetic desk attendant. We opted for a flight scheduled to leave 2 hours later, but a further 2 hour delay ensued while a charter company jet (typically configured on the assumption that humans grow no higher than 6 feet) was summoned because EasyJet had run out of planes (according to the pilot, who also mentioned strikes by French air traffic controllers). It appears that if we'd chosen to fly at midnight, we'd have paid £25 less per head. Should low cost airlines be obliged to refund the difference if flights are delayed beyond such a price band? The difference was almost enough to cover the cost of carrying our bags, especially as I'd foolishly failed to pay for baggage online when booking the flights 5 months ago, so incurred a baggage charge at double the online rate - £109 or 17% on top of the flight itself.

Meanwhile, back at the car rental desk, there was the usual kerfuffle over the fine but expensive distinction between "damage waiver" and "super damage waiver". I confess to always querying staff about the rationale for two 'waivers', as I suspect the cost of a combined waiver would be significantly less. But this time I was truly gobsmacked at having to pay Europcar an extra €173.32 to cover the insurance excess of €730 for 14 days (€12.38 per day on top of a base rental of €35.92). I was similarly stunned to learn that Europcar proposed to charge €75 each for two booster seats that we bet (correctly) you could buy in the local Carrefour for €16 euros a pop (€32 for the Ferrari-logo version). We'd pre-paid the basic rental of €502.88, so €348.32 worth of pretty essential 'extras' meant that the real cost of what we wanted was an additional 70% of the prepaid amount. Certainly true to the Europcar tag line: "You rent a lot more than a car".

But why all this nonsense? Is it perhaps because if 'low cost' travel operators were up-front about the 'real' cost of their services the average budget traveller would simply stay home or travel less often but with a 'traditional' operator? How many infuriating experiences will it take for many customers to take one of those options?

I sense that in this Age of Conspicuous Thrift the Western experiment with low cost airlines and other allegedly budget travel operators may be coming to an end. And we may well see a return to the era when the closest most people came to international travel was the effervescent luxury of a Peter Stuyvesant commercial.

"Mad Men" Minister's Role Model Should Be Nanny McPhee

In this age of bold government budget cuts, it seems odd timing for "Equalities Minister" Lynne Featherstone to waste time and money recommending that British girls and women should aspire to be like some TV actress. How very New Labour.

Politicians like our Lynne should aspire to be like Nanny McPhee, who arrives only when desperately needed and knows exactly when to disappear into thin air. Like now.

Image from Total Film.

Financial Services Becoming Less Fair

The Financial Services Consumer Panel, an independent statutory consumer body, reports that "Financial services compare poorly to the retail sector, with consumers considering financial services as less fair, being insufficiently competitive or accessible." The report cites product complexity and "loss of personalised individual service" as among the causes for the poor rating.

The downsides of the shift away from relationship banking to transactional, 'technology-mediated' relationships were also highlighted in research findings amongst low income earners presented to Financial Services Research Forum summer seminar this week, by Angela Sasse, a Professor of Human-Centred Technology at University College London, and Hazel Lacohée, Principal Researcher at BT Innovate and Design. Their work is part of the Privacy Value Networks research project (I am on the advisory board). Hazel ended here presentation with a list of features that would make financial services more useful to low income earners, including:

• basic bank accounts with standing order capability and separate sections for priority payments,
• alerts when accounts fall below agreed levels and
• loans and withdrawals in very small amounts.

At the same seminar, I asked Lesley Titcomb, acting COO of the Financial Services Authority, whether she thought that consumers need to become more adept at deciphering product offers and literature or that products should be made simpler and more usable. She said that the FSA favours the latter, and is switching away from an emphasis on greater disclosure (which requires the consumer to read more stuff) and examining how the regulator can be more involved in product design and marketing strategy to achieve transparency and fairness. However, Lesley noted that the European Commission still seems to favour greater disclosure as a regulatory tool.

Let's hope the new Consumer Protection and Markets Authority also favours simpler, more useable products rather than leaving consumers to work through all the mumbo jumbo.

Image from Kommein.

Twitter: McKinsey's Window On Global Change?

McKinsey Quarterly, the online journal of McKinsey, says "five crucibles for change will restructure the world economy", requiring all businesses to "pay attention to more stakeholders, more regulations, and more risks - and to watch to see what their customers are tweeting about them".

The online journal will focus on each of these drivers in the coming year. In summary:

1. Emerging market countries will contribute more toward world economic growth than developed countries, adding new consumers and driving innovation in products, infrastructure and supply chains;
2. Developed economies must innovate to substantially increase productivity;
3. Complexity in the international flows of capital, goods, data and people will create new business models and boost innovation, but bring additional risk and volatility;
4. Competition for resources will require greater productivity, investment in clean technology and attract greater regulation;
5. National governments and other nationally-oriented entities will be under greater pressure to cope with all of the above.

It would seem you're best advised to follow the coverage on Twitter...

Image from LMNeff.

Is The Retail Finance Market Opening Up?

The Bank of England reports a "widespread retreat from risk" amongst UK banks, in the face of:

• the sovereign debt crisis;
  
• a heavy refinancing schedule until 2012;
  
• the impact of the banks' own reduced appetite for risk;
  
• greater insolvency risk, particularly amidst negative equity in the commercial property sector; and
  
• higher future capital/liquidity requirements.
  

That's why we've also seen:

• a 23% decline in lending under the government-mandated small business loan scheme in the 6 months to March (despite bailed-out banks being told to lend more, rather than less);
  
• Moneyfacts report that the number of mortgage products has fallen, and margins remain high.
  

And it's not just on the lending front that banks face pressure. Savers must be offered a better deal after the Office of Fair Trading responded favourably to a super-complaint by Consumer Focus. If consumers are careful to switch for better returns, that unduly cheap source of bank lending capital funding may begin to dry up.

Fear and caution amongst the banks is likely to continue for some time yet. Deloitte says CFO's fear a double dip and government paves the way for cheaper public sector redundancies as departments prepare to implement 40% budget cuts.

Yet businesses and individuals still need funding at rates that don't merely suit the banks. The fundamentals that made Zopa a great idea in March 2005 are even more favourable today.

Necessity remains the mother of invention...

Image from Monica's dad/Flickr/Some rights reserved