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

You Must Switch Cards To Pay For London Olympics

I see that finally the competition authorities are looking at Visa's exclusive arrangement for the Olympic Games. I can well imagine that neither the Canadian nor Chinese authorities were as concerned as the European Commission and the UK's Office of Fair Trading. Visa is far better known to European competition authorities.

The BBC reports that:

"Visa is the dominant debit card supplier in the [UK] with 53 million customers compared with 17.5 million for Mastercard.

In credit cards, Mastercard has more customers with 36 million holders, compared with 22 million for Visa."

Of course, "dominant" has its own technical meaning under competition law, but you can see that even allowing for overlap amongst customers with both kinds of cards (poor Amex, JCB etc don't even rate a mention by the BBC), a lot of people may be frustrated at not being able to use a card to buy tickets and items at the Games themselves.

I have no trouble with the general principle that the Olympic Committee can grant exclusive deals with the aim of raising more money to help stage the Games. After all, being forced to switch soft drinks, beers or hamburgers for the day is no great hardship. But I do have a problem when that has the effect of requiring consumers to alter something as fundamental as their banking and/or credit arrangements, which may prove impossible or impracticable for many. That is similar to granting the Olympic television rights exclusively to a subscription-only television network.

A step too far.

In marketing terms, the arrangement may provoke something of a backlash (watch this space, for example). It may appear insensitive to impose an exclusive payment arrangement that obliges financially-stretched consumers to alter their banking and credit arrangements in these troubled times. And you would have thought that an event so massively undewritten by public funds should welcome payment in any of the generally accepted ways that any person can access and afford.

Cheap Working Capital For Small Business

Over at Oikonomics, we are discussing how to balance the relative importance of what happens inside the bubble of the City with what happens in the 'real' economy.

From a regulatory standpoint, the credit crunch should have taught us to acknowledge the links between the wholesale and retail markets and regulate them both as part of a whole.

Excessive investment banking fees and bonuses are a direct result of a regime that reserves the job of matching investment funds and opportunities to a privileged few. "Democratising" the financial markets, or opening them up to public participation via simple, transparent products and 'thin' intermediaries who charge proportionate fees could break this stranglehold and result in a more inclusive, reliable financial system.

Artificially separating consumer and small business credit from the FSA's narrow remit has also allowed giant banking groups to 'shade' their unduly high margin downstream distribution activities from regulator sunlight, even though they feed the wholesale markets for CDO's etc. Left to fend for itself as 'independent', the OFT has not had the clout to constrain the likes of high bank charges and  card interchange fees (it's failure to clean up mortgage lending became so embarrassing it lead to the creation of the FSA's 'high street firms' division). Even now, lending to the 4.3m small businesses in the UK is pretty much unregulated and banks are getting away with all the old tricks in that market. Yet improving SME access to affordable working capital must be a top priority if we are to grow our way out recession.

So these things should all receive the same regulatory sunlight as the mis-selling of endowments, mortgages and payment protection insurance. Limiting bank margins to appropriate levels in the 'forgotten' markets would encourage competition from simple low cost products distributed by 'thin' intermediaries. Again, this would result in a more inclusive financial system and cheaper working capital for small business.