Buried!

Has a week gone already?! The distinct lack of posts has been due to my being buried by business-as-usual, plus:

• Consultations on the implementation of the new E-money directive by both the Treasury and the FSA;
• The latest edition of the EC's Consumer Markets Scoreboard;
• Excellent discussions on where bankers and social thinkers disagree and agree;
• All the other great stuff that I tweeted or retweeted, to which I may yet find the time to return; and
• Last but not least, agreeing the topic for discussion at the inaugural meeting of the SCL Junior Lawyers' Group on 20 January 2011 - be there!

Have a great weekend!

Image from PubSub.

Join the Quest for the Source of EU Legislation

This is the Last Straw. I've just seen "micro-enterprise" defined in a document called "2005/0245 (COD) LEX 797" as:

"an enterprise, which at the time of conclusion of the payment service contract, is an enterprise as defined in Article 1 and Article 2(1) and (3) [oh, don't forget 2(3)!!] of the Annex to Recommendation 2003/361/EC".

I'm thinking of launching a Quest to find those responsible for this latest gobbledigook and demand to know in plain English what "micro-enterprise" was intended to mean, without referring me anywhere else.

But where to start?

In 2005, the UK's Better Regulation Commission produced a fascinating, literal "map" of what we might really loosely describe as the 'European Union legislative process'. See especially page 14.

I'm not being sarcastic here. The report is a veritable base camp from which to begin the quest for the source and true meaning of EU legislation. It provides a guide, pack animals, tents, rope, torches and other basic tools. The rest of the specific search is down to good eyesight, a laptop or PC, broadband, physical fitness, strength, caffeine, food, and several towels that can be soaked in ice cold mountain springs and wrapped tightly around one's head. Oh, and a journey to Brussels. With a lobbyist.

Are you in?

It will be very crowded, but ours will be lonely work. Listening amidst the din of countless institutions and committees for the mystical whisper known as the "Social Dialogue". For it is only in that stream of semi-consciousness that we may dare to even hope to find the truth of the coded messages embedded in the "stakeholder input", "advice", "green papers", "proposals", "adoptions of proposals", "opinions", "consultations", "co-decisions", "common positions" and, ultimately the Regulations and Directives that emerge six or seven years later to drive us to distraction.

No?

Yeah, sod it. I'm staying in London to earn a crust.

Predictions for 2008 - Financial Services 2.0

The SCL's annual predictions are among the most visited pages of its web site, and it's time to get them in again. Here's mine, for what it's worth:

"Economic conditions will deteriorate further in the financial services industry. Downward pressure on revenue and the cost of funding, marketing and distributing financial services to consumers and small businesses will force institutions to compete on innovation and service quality. But not being organised to provide either, these incumbents will fail to resist the entry of facilitators that have built trust and loyalty by empowering consumers to get the product that is right for them personally in other retail markets. Banks will be the back office service providers, not the front, for Financial Services 2.0."

Stephen Green, Chairman of HSBC, seemed to acknowledge yesterday that this ball is already rolling.

Should be fun... apart from the bit about deteriorating economic conditions.

The Future of Money

Thanks to Blackbeltjones I recently had the privilege of discussing the Future of Money as part of a programme at the Royal College of Art in London.

Based on what I consider to be the relevant drivers of change, the need to solve significant consumer problems from the consumers' point of view and likely sources of resistance to change, I suggested that the innovative retail financial services of the future would tend to share the following characteristics:

1. The service is unlikely to be offered or facilitated by an entity that consumers perceive to be an “institution”;

2. The service solves the root cause of consumers’ critical need in the course of actual or desired activities, linking with trusted third parties to provide a comprehensive consumer experience;

3. The service leverages a shock amongst consumers who subsequently accept that the world has changed, yet helps them to embrace that change;

4. The service leaves day-to-day control of the management of money with the consumer;

5. The service improves rapidly with user collaboration, giving value beyond the facilitator;

6. The service will remain successful so long as the facilitator continues to invest in enhancing the service and meeting related consumer needs rather than seeking merely to enrich itself (i.e. preferring to meet the needs of stakeholders other than consumers);

7. The service is safe, easy to use, and involves communications that are fair, transparent (enabling ready comparison) and neither misleading nor patronising;

8. The service and its operator plays well with the regulators and public policy/opinion-formers.

More soon.

Personal sat nav

Hot-footing it between meetings in the central areas of most cities can be a real heart-in-the-mouth experience if you aren't sure of your route. I found myself stuck the other day and used Walkit. I plugged in the two post codes and ended up with a series of alleys and cut-throughs in central London that I'd never have worked out on the fly. You even get a calorie burn and the satisfaction of knowing how much CO2 you saved against alternative transport.

EU Regs Won't Catalyse Cross-border Markets

The European Commission's plans to regulate to create cross-border consumer markets will only limit innovation and growth. Faciliating solutions to more practical problems inhibiting the organic growth of markets would be more helpful.

The European Commission recently announced its decision to propose new EU consumer rules in an attempt to create cross-border retail markets in the EU. The member of the European Commission responsible for consumer policy, Mrs Meglena Kuneva, said:

“I am convinced that consumer policy is uniquely well-placed to help the EU rise to the twin... challenges of growth and jobs and reconnecting with its citizens... The Commission’s vision is to demonstrate by 2013 to all EU citizens that they can shop from anywhere in the EU, from a corner shop to a website, with confidence and equal protection. And we will also show to all retailers that they can sell anywhere on the basis of a single, simple set of rules.
We are a long way from those goals now…”

A long way indeed.

A study by the European Consumer Network on cross border complaints pointed to problems with delivery (46%) and defects or lack of conformity with description (25%) as the two main problems.

Furthermore, Eurobarometer discovered in October 2006 that while 27% of EU citizens shopped online in 2006, only 6% made a cross border purchase online. It also found that consumer perception is focused on more practical concerns: "... it is harder to resolve problems such as complaints, returns, price reductions, guarantees etc” (71%); “there is a greater risk of falling victim to a scam or fraud” (68%); “there is a greater chance of having delivery problems with goods or services” (66%); “there are more problems returning a product they bought at a distance within the "cooling-off" period” (65%). From a business standpoint, “the biggest perceived obstacle to cross-border trade is the insecurity of transactions (61%)… potential problems with resolving complaints (57%)… difficulties in ensuring after-sales service (55%) and extra delivery costs.” A further 43% of respondents cited language differences as an obstacle to cross-border trade. Such issues may point to problems with enforcement of existing laws and contracts, but not to any fresh regulatory opportunities.

Similarly, a May 2007 study by Civic Consulting reveals that efforts to construct a single European market for consumer credit by introducing a new consumer credit directive are flawed. According to the consumer organisations and national banking associations who were polled, “the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.” As such, “the supply side of the market… does not expect increased demand and therefore economic growth from the proposal.”

In short, the European Commission is proposing a regulatory solution for problems that have no regulatory solution. And worse, for those of us who do share an ambition to create cross-border markets, is that, ironically, regulation in this area is likely to stifle innovation and constrain growth rather than promote it. As has been observed by Marsden et al. (2006) in connection with the reform of the TV Without Frontiers Directive, prescriptive regulation tends to cause markets “to develop towards more closed and concentrated structures”. This is because larger participants can afford compliance costs, lobbying efforts and have the bargaining strength to shift liability onto suppliers and consumers in a way that smaller market participants cannot – “hence, incumbents and regulated actors have incentives to drive up regulatory costs in other parts of the value chain”. Complex regulatory regimes may also either avert venture capital investment from attempted innovation in the regulated activity or ensure that it “will only flow to those companies considered to have the ability to ‘play a good game’ with the regulators”.

If the European Commission must play a role in creating cross-border retail markets, then it should help foster solutions to the real obstacles, bottom-up amongst market participants, not pose new ones.

How we view and use money

Simon Gleeson of Clifford Chance has written a very concerning overview of the shortcomings in the Financial Services Authority’s review of how the retail financial services that it regulates are distributed to consumers.

He suggests that the proposed three tiers of advice, coupled with EU-driven changes to the test of what is appropriate, will increase the cost of products, leaving the “mass market” with only the Sunday newspapers to help them invest. Which means they won’t.

To be fair, the FSA says it has an open mind on the proposals, and the initial consultation doesn’t end until December.

But the most troubling aspect of the review is that it proceeds from the perspective of whom and what the FSA regulates, and not in terms of how consumers want to use money. As consumers, we don’t think about who is regulating the different ways we use our money. We just expect it to be able to use it as we wish, without complex, artificial or costly barriers being placed in our way.

There is already very little focus on providing more usable, transparent and cost-effective financial services from the consumer's standpoint, because that would seriously impact bank profitability that is already under pressure. For example, according to Uswitch, figures for RBS Group, as at March 2007, showed that retail profits rose 1.5% (about 25% of group profits) against a rise of 14% in retail write-offs (69% of all write-offs).

Witness also how UK banks have actually gone to court to defend fees that consumers and regulators have long complained are too high; and their grudging agreement to speed up electronic payments, only in the face of competition inquiries.

Of course, over the past decade consumers have seized upon usable Internet technology to disrupt traditional supplier-determined experiences in travel, music, retailing, betting/bookmaking, games, telephony, TV and so on. Social lending and micro-finance are established elements of this rapidly evolving trend, which will surely reshape banking, insurance, asset management and pensions in due course - provided that regulation does not get in the way.

For a further catalyst, look no further than the current credit crisis. The inability of banks to understand who owes what to whom so that they can confidently lend to each other again is illustrative of how badly transparency is lacking. The savers' run on Northern Rock shows that consumer feel it too, and are prepared to act when they consider that someone is less than transparent about what is being done with their money.

So it is now more critical than ever that the FSA views the financial services market not from the perspective of the institutions and products that it regulates, but in terms of how consumers want to use their money transparently and cost-effectively, and what is needed to help them do just that.

Why "Pragmatist"?

A pragmatist is simply someone who acts in an informed way to control his or her personal environment, using a combination of theory and practice. Or as John Dewey put it, "intelligent practice versus uninformed, stupid practice". As a lawyer working on innovative solutions to consumer problems, I see plenty of examples of both types of practice.

A pragmatist does not slavishly follow rules, or political dogma, or "positive thinking" or the herd. To do so would assume a world that is somehow ordered, whereas almost all significant events in history are Black Swans - surprise events that have a huge impact and which we rationalise by hindsight. Rules and dogma can turn out to be badly wrong. The herd is eventually caught out. So it's dangerous to follow. Instead, we must rely on experience and critcial thought to minimise our exposure to the downside of these surprise events, and maximise our exposure to the upside.

The combination of theory and practice that qualifies as "intelligent practice" involves trial and failure. It involves being sceptical and "contrarian". It encompasses the aggressive "tinkering" of entrepreneurs - facilitators - who have helped us wrest control of our own life experiences from the one-size-fits-all experience offered by the established music labels, book publishers, retailers, package holiday operators, banks and political parties. These facilitators make the difference between us 'raging against the machine' in a lone, fragmented way and acting together as individuals in a highly concentrated fashion. And this giant, boundaryless online community of practising individuals and facilitators characterises the "architecture of participation" that lies at the heart of "Web 2.0".

It's perhaps no surprise that the rise of Web 2.0 has coincided with a decline and low levels of trust in our institutions, and findings that "the level of alienation felt towards politicians, the main political parties and the key institutions of the political system is extremely high and widespread [yet...] very large numbers of citizens are engaged in community and charity work outside of politics. There is also clear evidence that involvement in pressure politics – such as signing petitions, supporting consumer boycotts, joining campaign groups – has been growing significantly for many years".

In other words, it may be that institutions are being marginalised by people pragmatically engaging with each other in their own digital communities, not only for retail purposes but also political, environmental, health, and economic reasons.

Big questions arise.

How do the institutions get it so wrong? How do facilitators succeed where institutions fail? How can we bridge the gap between what institutions say is right for us, and what is actually right for us personally? Could today's successful facilitators become tomorrow's institutions? Are today's institutions doomed? Or can they respond, re-organise and align themselves with how "we" individual citizens and consumers behave?

I explore these questions here, and look forward to discussing any thoughts or comments you have along the way.