April 5, 2019
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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.
GDP Rethink for the Digital Age
Despite the century-old use of Gross Domestic Product (GDP) as a main indicator of a nation’s economic wellbeing, some economists are calling for the creation of a new measure that could challenge its dominance. The new proposed metric, called “GDP-B”, also calculates free digital goods and services within its measurements, and is designed to capture the numerical value of the things we don’t pay for but that still hold value, such as online maps, photos taken on smartphones, Wikipedia, music streaming and social media. (From Quartz, 29 March 2019)
Banking Virtual Assistants Go Mainstream
NatWest is planning to launch a new ‘virtual assistant’ service called “Mimo”, which will allow users to switch insurance, subscription and energy deals through their bank for the first time. The app will use new technology made possible by Open Banking and follows last year’s revelation from the Competition and Markets Authority that customers were losing out on £4bn a year in “loyalty penalties” as a result of not switching providers. (From The Telegraph, 1 April 2019)
Klarna: The Retail Gamechanger
Pay-it-later giant Klarna has announced an innovative new service that will allow retailers to use Klarna as the login provider for their whole site. This gives retailers the ability to sidestep the need to put in place complex authentication technologies (many of which will become mandatory from September under the EU’s Second Payment Services Directive) and also enables personalised storefronts with targeted advertising. (From AltFi, 4 April 2019)
Punishing Pet Cover
The pet insurance industry is hiking its costs to staggering levels, as thousands of owners are forced to ditch vital cover for their pets. A Money Mail investigation reveals it now costs more to insure the average cat than a home and its contents, and that more than one in three pet owners say insurance is not worth the money. Even those owners who do fork out for insurance are often discovering their policies will not pay out when their animal falls ill. (From This is Money, 2 April 2019)
Paid to Invest?
A new fund that offers to pay investors for the first year that they invest has just launched in the United States. Exchange-traded fund provider Salt Financial is reportedly looking to offer a “negative fee fund” to investors for any money invested before the Salt Financial truBeta US Market fund reaches $100m. The invention could prompt copy-cat funds in the UK, but experts warn that if negative fees is the only selling point a fund has to offer, there’s likely to be a catch. (From The Telegraph, 2 April 2019)
It’s said that an Englishman’s home is his castle – but with renting on the rise, and the property market starting to falter, is the UK’s obsession with home ownership sustainable?
Last week, a report revealed that British babies are now as likely to be born into rental accommodation as into an owner-occupied home for the first time in almost six decades. The report found that renting is “increasingly impossible to escape from” for young families, and that for about 200,000 the threat of eviction impacts normal family life.
So, is renting the new normal? Though to British consumers the idea may seem like a new unwelcome phenomenon, 50 years ago half of all dwellings were rented rather than owner occupied. The latest data (for 2016) suggests this proportion has now fallen to 37% – though last year it was claimed home ownership is falling faster in the UK than any other European country.
The UK tends to have a very different view of renting than its European neighbours. Much is made of our obsession with property, and according to a recent British Social Attitudes (BSA) report, 86% of British people would buy their own home rather than rent if given a free choice. But in countries like Germany – which falls at the bottom of the European homeownership league – it is as common, if not preferred, to rent rather than buy a home.
The perceived disadvantages of renting in the BSA report speak to some of the market conditions that prevent renting from being a desirable choice. High rents (32%), problems with landlords and letting agents (21%) and restrictions around the length of time you can stay in the property (12%) are all common grievances. The latter is particularly concerning for families who rent, given most private tenancies are short-term (around six months to a year) and moving regularly with children can be both difficult and impractical, not to mention its impact on family cashflow.
But change is on the horizon. After sustained pressure from organisations such as Shelter, the Government is currently consulting on a proposed model for a three-year tenancy with a six month break clause, an innovation which could bring some much-needed stability to the private rental sector.
Letting agent fees – which are generally charged for admin such as tenancy renewal, referencing and credit checks, to the tune of £400 on average – are also set to be banned from June. Tenant deposits are also set to be capped to a limit of five to six week’s rent, depending on the property’s annual rent. Rental controls – which have previously been in place in the UK to limit rental increases, and still exist across many parts of Europe – have also been mooted, though some areas of the industry argue this would do more to damage landlords than help tenants.
The Financial Services industry is also putting forward its own examples of innovation, such as the recent move to include rental payments are part of the credit referencing process, helping tenants to build their credit score and open doors to more consumer finance options.
According to the BSA report, the most often perceived advantage of home ownership is it represents a good investment. But as the rate of house price and population growth begins to slow, many are arguing we are swiftly heading into a new era of static to falling house prices. Government legislation is also on the turn, with second home-buyers being hit with council tax rises and a stamp duty surcharge, while landlords have been hit by a whole raft of measures designed to make being a property investor less lucrative.
So with the tide seemingly turning in tenants’ favour, could the UK start to adopt a more European approach to renting? A future nation of renters is a distinct possibility, but that reality may require the financial services sector to rethink the traditional financial journey of the typical Brit – which has underpinned the entire industry for 50 years – and assess how wealth, cover and debt can be better sold and managed without a home in the equation.