Study: Consumer trust eroded by lower quality financial products
By UK CreditCards.com
Consumer trust in financial products is being eroded as a result of competition that focuses on price at the expense of overall quality, a thinktank has claimed.
Research by the Social Market Foundation (SMF) suggests that many people do not compare credit cards and other financial products because they have lost faith in providers and are confused by introductory offers and small print. The SMF believes providers need a new incentive to improve the quality of their products.
Study: Competition between financial providers trumps quality
Credit card, bank account and savings account providers need to focus more on quality over quantity, according to the SMF. The thinktank's latest research suggests the overall quality of many products does not match the appeal of their competitive headline rates. Its report, which is based on YouGov research and a separate poll of 2,076 adults, found that consumer trust is being eroded as a result of this excessive focus on price competition.
The SMF believes that the problem is being fuelled by providers' determination to secure the business of first-time buyers. It found that less than half of 18 to 24-year-olds had credit cards, savings accounts and other financial products, compared with 73% of over-55s. This makes young people a prime target for providers, who tend to offer their best deals to new customers and often neglect to reward their existing ones.
The issue is also compounded by customer inertia, argues the SMF. Once a person has signed up to a particular deal, they tend to remain with the same provider, even if they are dissatisfied. For instance, the SMF found that 65% of bank account holders who felt they had been treated unfairly by their existing bank had not switched. People are also more likely to obtain other products, such as credit cards, from their current account provider.
Report author John Springford pointed out in a press release that competition can be a "great thing" for consumers. But, he noted: "Our research has found that in the financial services market, where complexity makes it hard for people to assess value, price competition leads to hidden charges, poor coverage and acres of small print. No wonder they (consumers) are confused and mistrustful."
action needed to improve products
The SMF believes that government action is needed to encourage financial providers to improve the quality of their products. It wants companies to stop relying on introductory credit card rates and other 'teaser' offers and make their products more attractive in the longer term.
To address the issue, the thinktank has called for a new kite-mark scheme to be introduced so that consumers can easily work out the overall quality of a product, rather than focus merely on headline price. The mark would only be awarded to products that do not rely on 'teaser' rates to attract new customers or confuse people with complicated small print.
"The only solution is to make firms compete on quality rather than price," argued Mr Springford. "The government needs to step in and lead the market towards healthy competition on quality rather than damaging price competition."
Published: 14 July 2011
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