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Monday, 6 August 2012

Dead Simple Financial Products

Little wonder that the UK Treasury is still trying in vain to persuade financial institutions to supply 'simple' financial services. The recent report shows that the government is relying on the same old players and the same old view of the marketplace to come up with the same old result. The challenge for new entrants will be whether they will be able to cut through the wall of spin and marketing noise to reach consumers with truly cost effective services that are adapted to their day-to-day activities.

The Simple Products Steering Group's recent interim report continues to view the financial services market through the lens of traditional products, providers and consumer segmentation. Its working groups are drawn exclusively from existing providers. The report refers to the so-called "mass market" and believes that simple products "should not be tailored to individual needs". It equates 'choice' with complexity. It seeks to balance “a fair deal” for consumers with “a viable commercial proposition for [existing] providers". Perhaps worst of all, for simple financial products to succeed the Steering Group believes “it is essential to improve the awareness and financial capability of UK consumers.” The report recommends two types of savings accounts (at-call and 30 days’ notice) and life cover. Apparently, millions of us will pile into these things on the basis of a little consumer education, a kite-mark, feel-good messaging and… certain choices embedded in default settings.

Hello?

If retail banks and life insurers were capable of delivering cost effective, useful financial services, there would be no need for the Simple Products Steering Group.

When will the authorities realise they’re flogging a dead horse?

As explained here, the route to simplicity and transparency lies in 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. Trial and error, testing and learning, flexibility and adaptability are vital steps in this process. Yet our financial services framework is intolerant of them. A new service should be able to launch and undergo several iterations in the time it takes to get through today's authorisation process. 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.



Image from Worth1000.
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