In Brexit Britain Retail Will Be Mainly Online

When high street goods retailers call for increased taxes on e-commerce to subsidise their local business rates, you know their business models no longer make sense. Online retail sales now represent 17% of total retail sales in the UK, up from 5% in 2008. E-commerce is steadily taking over and UK consumers cannot afford to resist. Consumer debt is at its highest in history. So, add the rise in zero hours contracts with a Brexit headwind, and the shift to mainly online sales of goods should happen even faster. That in turn should boost the market for online sales more generally.

In typically populist fashion, all the usual suspects are blaming someone else. Tesco’s CEO has dubbed his plea for a 2% tax on any goods sold online an “Amazon tax”. He reckons this would raise a meagre £1.25bn but wants that spent on lowering the business rates for his physical stores. In other words, like newspapers, he doesn't make enough through his own online sales to subsidise his own under-performing bricks-and-mortar. 

Such a small sum will barely touch the sides within Tesco, yet it will increase all consumer prices for the ever-increasing volume of online sales. But the UK's over-indebted consumers simply can't afford that - and even if unemployment remains low, the number of zero hours contracts has tripled to account for a quarter of employment growth, and 2.8% of overall employment.

 

Similarly flawed is the UK Chancellor's populist "threat" that tech companies face a “digital services tax”.  It sounds good, but will be futile to protect UK offline retailers and simply raise consumer prices that won't be affordable.

The problem is high street retailers' failure to adapt to the long term trend of rising online sales. You can't blame that on the tax system. Taxes are something businesses have to factor into their planning, not the other way round. And taxes should be technology neutral, rather than making consumers and taxpayers subsidise legacy technology over innovative competition.

So, the sale of goods on the UK high street is doomed as we know it. But as they adapt or fade away, e-commerce for goods should boom. That will boost the market for directly related online services, such as point of sale finance, as well as the market for online services more generally.

The FCA and Mobile Financial Services

The Financial Conduct Authority is going to great lengths to deepen its understanding of the retail financial services market. Project Innovate is a case in point, as is the recent (interim) report on how consumers use mobile devices. However, both initiatives underscore the need for non-banks to engage with the FCA far more than they have to date, and to provide a lot more information about how, why and when consumers need or want to use financial services.

It's a bit unfortunate that the FCA has used 'mobile banking' to describe consumers' mobile activities in the financial services context. We need to get away from such bank-centric language. After all, the FCA points out that consumers don't just use mobile devices to check the balance of a bank account, a bank statement or access internet banking web pages. There are many mobile services offered by payment institutions and electronic money institutions, not to mention the providers of credit, investment and insurance services. Each type of service provider is bound by different FCA-supervised rules and regulations when dealing with us, so it's also a little ironic that the FCA is concerned that "consumers may be unclear about their rights and obligations when using mobile banking products and services".

But terminology is a red herring. The starting should be to consider what activities consumers are engaged in when they need to rely on financial services - and whether the required services are sufficiently accessible or useful.

Here the banks' mobile offerings provide a helpful illustration of how financial services can be misaligned with consumer behaviour. The FCA found that consumers are using mobile devices to access major banks' systems far more frequently than the banks estimated they would (50 times more often than visiting a branch and 20 times more often than a web site). This has caused capacity issues and outages in bank IT systems, which the FCA is not happy with. But the FCA doesn't seem to have considered that this over-reliance on mobile channels might also demonstrate how awkward it is for consumers to use bank services through other channels. 

In fact I doubt whether we really need or want to contact our financial service providers' mobile sites at all, other than in an emergency. Nobody, except banks, engages in "banking". We may use a bank's services, but only in the context of a much wider activity, such as buying a house or a birthday present on the way to a party. "Banking" is what banks think consumers are doing, because banks only view the world through the lens of their own products and not consumers' day-to-day activities.

The FCA needs to avoid falling into the same trap. I mean, there are plenty of great examples of seamless online customer experiences out there which the FCA could use as a benchmark.

Indeed, what this report emphasises most is the need for non-banks to engage far more with the FCA, particularly in the context of Project Innovate.

Alas, it may be too late for them to help shape the second Payment Services Directive...