Is profit a barrier to fairer financial services?
19th Feb 2019
Certainly, it has played a part. The credit crunch was driven by cultures which were excessively motivated by profit.
Innovation doesn’t have a conscience
Since that point, the financial services industry has created a lot of buzz around fairness and social inclusion. Innovation is being called upon to provide the answer.
Despite all this, it is during this period we’ve seen the emergence and growth of payday and doorstep lenders. It seems innovation doesn’t have a conscience. Motivated by profit, these innovators were quick to spot gaps in the market.
Yet, I don’t think this means profit is bad and I think innovation can still provide the answers.
If the consumer isn’t paying attention, they can be exploited
Many people who need a service don’t care about who they get it from. Nobody ever desperately needed a loan and was prepared to wait 3 weeks for their favoured provider.
When it comes to their services, many people are ambivalent of the provider they choose and are ignorant of what products could be available to them. As long as they trust the brand, service consumers will most likely minimise the effort they put into getting a product and are unlikely to understand their options in any detail. A service by definition is “a system providing a public need.” It is unlikely to inspire the same aspirational emotions of a coveted physical product like a house, fashion, car or gadget that might lead to a greater investment of time. For most, a service provider can only either meet expectations or let them down at a time of need.
It is these consumer drivers that allow profiteering to proliferate. When the consumer isn’t paying attention, then they can be exploited. The prevalence of bonus periods on loans, savings and utilities, and excessively increasing annual premiums on insurance are evidence that this exploitation hasn’t died post credit crunch. These things are an industry norm. Many providers feel they have to replicate them to compete. As entertaining as He-Man, Skeletor and Sergei the Meerkat are, those adverts can only be funded by the huge introducer fees hidden behind the perception of taking the effort out of market research.
Give the consumer what they want – minimise friction
What the consumer really wants is to minimise the friction. Make it incredibly easy for consumers to find the right product. Be where the consumer is. Be clear on the value (including the ethical value) of your proposition. Then make it incredibly easy for consumers to be set up with that product.
If there was zero consumer friction in any service industry there wouldn’t be the opportunity for profiteering. Payday lenders and doorstep lenders only exist because they exploited this demand for lack of friction. If you take that away and offer a fair product, there’s nothing left for them.
What about regulation?
Regulation alone has proved it can’t be the answer. Too often regulation adds friction into the process rather than removing it. Open Banking / PSD2 is an example. This well-backed regulation driven from an angle of improving competition in financial services is still only having a limited impact because of the friction still prevalent in customer journeys.
Regulators have shown that they can react effectively when things get excessive, but at that point, you’re putting out the fire not preventing it. To prevent it we, the providers, have to take the lead.
If everyone focuses on removing friction, a fair market can emerge supporting for-profit and not-for-profit providers
For those of us genuinely interested in fairer financial services it can’t just be about creating financial products with great prices and support. Recent times have proven this. If you make people work too hard to find that product, and if the service is too cumbersome to access, the door is open to those that are prepared to solve those problems. Consumers pay the price. We need to innovate to give consumers what they want. We need to innovate to reduce consumer friction. If we can make fair products easy to find and obtain, then profiteers won’t have the air of consumer ignorance and ambivalence to breathe anymore.
We’re at the ABCUL annual conference in Manchester 8/9 March – get in touch to arrange a time to get together there