April 6, 2018
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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.
Shady Ads Get a Boost
Small companies face as much scrutiny on their advertising practices as Facebook does at the moment. That’s the taking from this long-read Bloomberg Businessweek analysis, which looks at the US platform’s dealings with affiliate marketers and delves into how exploitable its terms really are. (From Bloomberg Businessweek, 27 March 2018)
The Great 10K Giveaway
The Institute for Public Policy Research proposed that the government gives all UK citizens £10,000 as a “universal minimum inheritance” when they turn 25. The move is aimed at addressing growing wealth inequality and supporters say it would give everyone an opportunity to get involved in the country’s economy. (From The Guardian, 2 April 2018)
Reigning Supreme in the Float Scene
It has been a busy Q1 for London IPOs. A new EY report shows that the capital scored 16 new listings across its Main Market and AIM, with the majority of these in the financial services sector. Interestingly, despite the number of floats being down 38% compared with the same period of 2017, the amount generated in proceeds climbed by 6% to nearly £1.3bn. (From City A.M., 2 April 2018)
Big Banks Face Up to the Tech Tune
Technology companies are set to take a big chunk of customers from banks as they ramp up the pressure on incumbents. According to experts, payments is one of the main segments where traditional banks stand to lose out, as fintech’s innovation in this area turns up the heat with faster and better offerings. (From Financial Times, 1 April 2018)
Time’s Up for Asset Managers
The City’s watchdog has called time on an era of bloated fees and has given the UK’s £8 trillion asset management sector just over a year to justify the high prices it charges savers, or switch them to cheaper funds. (From The Telegraph, 5 April 2018)
The challengers’ challenge – value vs. quality
This week, Halifax announced a barn-storming last-minute ISA rate of 2.25%, which likely drew many people’s attention towards the traditional high-street lender. Such a rate could not be matched by challenger banks who do not have the same depth of capital to be able to offer their customers similar market-beating rates.
This raises the question of what challengers will have to do to overcome their lack of capital clout and still win over consumers?
Most newcomers are not challengers in the purest sense, as they are not trying to take on the UK’s six big banks directly. Rather, they are looking for niches and pain points to take advantage of. In doing this, they have to show that while their rates might be inferior, their understanding of customers’ needs and resulting service offer is superior.
So it all comes down to ‘quality versus value’ and whether consumers perceive they are getting a good deal. If you see a challenger’s financial product is more expensive, you may think you are paying for the service, or you might also think you are being over-charged. Alternatively, a consumer might feel that a cheaper high-street financial product is a great deal, or one where you are ‘getting what you pay for’.
In a world where challengers will struggle to win a race-to-the-bottom price war, their communications will have to carefully set out what value their proposition is offering. Part of the challenge is speaking to the functional, emotional, life-changing and social needs of the new banking consumer, and whether these can be made more enticing than a good headline rate.