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Friday, 27 April 2012

The Complex Job of Producing Simple Financial Services


There has been a futile tendency amongst regulators to view 'simple' retail financial services as merely 'basic' or 'vanilla' versions of existing products. And the Treasury's aspirations in this area have not improved, at least as of February 2012.

Perhaps ironically, the route to simplicity and transparency is much harder than producing a complex product that no consumer really understands. To produce a simple retail financial service involves first understanding the complexity of the consumer problem being addressed, then figuring out the simplest, most consumable service that will solve it. That's the role of a facilitator. By contrast, those producing complex products are unlikely to be focused on the consumer's problem in the first place, let alone understand it - they're focused primarily on solving their own problems at consumers' expense.

The path to simplicity involves disruptive innovation and critical thought to remove not only the complexity but also the intermediaries ('institutions') who've failed to solve consumers' problems cost-effectively to date. Trial and error, testing and learning, flexibility and adaptability are all key characteristics of this process. Yet our financial services framework is intolerant of them. In fact, a new service could launch and undergo several iterations in the time it takes to get it authorised by the regulators in the first place. Tiny factual differences have seismic regulatory implications in the type of permission or licence needed, and this adds to the time-lag and legal advice involved. We must figure out how to make the process of decent innovation easier.

Having waded through all this treacle to actually produce an innovative, simple product, there is then the challenge of explaining very simply how it works - and on a low budget. I recall Richard Duvall saying that £60m was spent on the launch of Egg, while the marketing spend dedicated to the launch of Zopa was £35k (though the phenomenal PR benefit from launching something truly new was priceless). But perhaps that isn't as much of a disadvantage as you might expect. While we see plenty of pointless, fluffy TV ads for expensive banking products, we don't see much marketing effort devoted to the 'basic' versions. As Professor Devlin found in his research for the Treasury, low fees and ease of switching has dampened traditional institutions' enthusiasm for creating and marketing simple stuff when there's so much money to be made from complexity and inertia.

At any rate, we need to celebrate the really simple, clear and transparent explanations of how our new financial services work. I've set out some examples below from my own experience. Some relate to services that are in beta or brand new, some established. To demonstrate the ability of TV journalists to explain things incredibly simply, I've also included just one piece of excellent coverage that removed the need for the business concerned to produce videos of its own.

Other top-tips on great explanatory clips are welcome.


Nutmeg




Abundance Generation




Elexu



Zopa



Funding Circle




PeopleFundIt

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