The arithmetic of financial interest

Does confusion marketing actually exist? The issue has been given new piquancy as result of a damning report by the Commons Treasury Select Committee on the retail activities of the high street banks and credit card companies.

The MPs – latest in a long line of august officials to savage financial services for their impenetrability – certainly weren’t in a mood to take prisoners. They roundly condemned the big four banks for profiteering; hoodwinking customers by resorting to arcane interest calculations; and abysmally failing to rectify matters after previous criticisms of the same kind.

The charge-sheet is certainly comprehensive, and suggests more than a hint of deliberate intention, yet it falls well short of portraying a serious and systematic conspiracy by the financial services community. A more compelling alternative explanation for the status quo is that consumer unwillingness, or inability, over the years to engage in what are often quite complex or boring product offers has forestalled the need for transparent, competitive reform within the sector.

In this, retail financial services shares a common heritage with other sectors often deemed culpable of confusion marketing – for instance utilities and telecoms. All of them display a tendency towards inside-out product-focused marketing, whose benchmark is minute functional differentiation with the competition rather than a genuine concern for what the end-user may want. Put another way, it’s the reason why advertising creatives often complain that, if you put your thumb over the logo, you would be hard pushed to tell one financial services ad from another.

But change, often falsely heralded in the past, may at last be on the way. The first portent was the dot-com revolution. Though in most instances it proved fool’s gold, where financial services are concerned it has bequeathed some lasting benefits. In a general way, it has furnished Web tools which enable individual customers to compare and contrast a vast array of product advantages (however minute) at the touch of a button. More specifically, it has spawned Internet banks, which though mostly subsidiaries of existing bricks and mortar institutions, has introduced a measure of product innovation and internal competition on interest rates within the sector.

The trouble with Internet banks, however, is that they tend to cater for a limited number of relatively high net-worth individuals, leaving the mass of the banking public unmoved. A more potent catalyst of change is likely to be a steadily growing consumer alienation (and even mild outrage) caused by the cascade of financial services scandals now coming to light. This is no media-fanned storm in a teacup, but a matter of deepening concern for anyone requiring a pension within the foreseeable future. Given the progressively ageing UK population and the decaying pot of public provision, politicians will be keen to make as much capital out of the scandals as possible, if only to deflect attention from themselves. The Sandler and Pickering reports are merely a beginning.

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