Capital Markets Corporate

September 6, 2019

Our Weekly Newsletter


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.

RPI Announcement Shocks ‘Linkers’ Market
A proposed reform of the flawed Retail Prices Index (RPI) has sent shockwaves through the £400bn market for inflation-linked government debt, with the price of some bonds dropping 10 per cent. The plans, announced by UK chancellor Savid Javid on Wednesday, will correct flaws in the way RPI is calculated by 2030 at the latest, bringing the measure much more in line with the alternative consumer price index including house prices (CPIH). The announcement resulted in a sell-off of RPI-linked government bonds known as ‘linkers’ – popular with investors such as pension funds looking to hedge against rises in inflation – with potential for losses to deepen. (From the Financial Times, 4th September 2019)

Help to Save Sinks
Figures from HMRC have revealed that a government scheme aimed at nudging low-earners to set aside savings has failed to deliver results, with only one in 27 of those eligible applying so far. Meanwhile, of 132,000 accounts opened with the Help to Save scheme, as many as 32,000 have yet to have any money paid in. The scheme was introduced to help address the fact that millions of households have no precautionary savings to help them prepare for unplanned expenses, but seems to be failing to strike a chord, despite offering a number of bonuses to the 3.5 million people entitled to the scheme. (From The Times, 2nd September 2019)

The Rise of AI Cybercrime
A new type of cybercrime, which uses AI to impersonate people’s voices to direct payments, is on the rise. Hackers are using commercial voice-generating software to carry out the attacks, in what appear to be realistic reproductions of people’s voices. With easy access to audio tools and growing reliance on call centre contact, AI could be set to be the new frontier – rather than solution – for fraud. (From Quartz, 31st August 2019)

Tesla Enters Insurance Market
Tesla is set to become one of the first carmakers to offer its own motor insurance policies. The electric vehicle specialist will harness the data already gathered from its millions of vehicles, reportedly giving the company the ability to more accurately price premiums compared to other insurers. As such, Tesla plans to offer premiums that are 20 to 30% cheaper than policies from other providers. (From The Times, 3rd September 2019)

SME Support ‘Underwhelming’

Official figures have shown that the Treasury’s bank referral scheme, which links small companies with alternative lenders, is helping fewer than 800 companies a year, giving raise to concerns about the scheme’s efficiency. It is reported that since the programme’s launch in November 2016, fewer than 1,700 businesses have been assisted, a result which the Federation of Small Businesses referred to as “underwhelming”. Some of the banks that are obliged to pass on companies they turn down for lending to alternative lenders include the Royal Bank of Scotland, Lloyds, Barclays and HSBC. (From The Times, 2nd September 2019)

Using tech to curb unhealthy spending

Traditionally, those with spending problems have had to face their demons alone. But with financial providers exploring a range of ‘blocking’ services that prevent expenditure on certain items, could technology be the answer to curbing unhealthy spending habits?

The average UK household is now £15,385 in debt (excluding any mortgage borrowing) according to the Trade Union Congress, representing an all-time high. While debt can often be due to insufficient income, stagnating wages or the rising cost of essentials, excessive spending can also be a contributing factor.  As contactless spending becomes commonplace, it is becoming easier to make impulse purchases, while easy availability of cheap credit in recent years has created more temptation.

The causes of overspending can also be more serious. Mental health and debt have been described as a ‘marriage made in hell’, with half of those with problem debts having a mental health problem and debt being shown to worsen mental health. Spending sprees are common with mental health disorders such as depression and bipolar hypomania.

Overspending can also be linked to addiction. For example, more than two million people in the UK are either problem gamblers or at risk of addiction, with obvious financial ramifications. Complaints about British betting companies have increased by almost 5,000% in the past five years, as gamblers claim to have been enticed into spending even after displaying obvious addiction habits or asking to be removed from communications. One such gambler lost as much as £125,000.

But for those struggling to kick the habit on their own, help is on the horizon in the form of Gamstop – a system that will allows problem gamblers to block themselves from all UK betting websites in one go. All gambling companies will be required to sign up to the system as a condition of their licence to operate in the UK.

Challenger bank Monzo is already a step ahead, having introduced its own block on gambling spending in June 2018.  Customers wishing to self-exclude themselves from gambling can switch on the block from their account settings – and will have to jump through extra hoops if they want to remove the block, like speaking to a member of customer services or waiting 48 hours for gambling transactions to be permitted again.

Monzo chief executive Tom Blomfield has suggested a similar block could be put in place for spending on alcohol, cigarettes or even fast food – though it would require retailers to agree to share entire receipt data through Mastercard and Visa networks.

Elsewhere, Barclays already allows app users to block debit card payments to certain types of merchants, including gambling websites, premium-rate phone lines and even supermarkets.

While consumers ultimately need to take the first step in activating these spending controls, the availability of such technology could be a relatively easy but effective way of stopping overspending. It also fulfils a valuable social purpose in helping to minimise financial damage caused by addiction or mental health problems.

Widespread adoption within the banking industry is needed for this to take full effect, as well as clear and targeted communications to help consumers recognise when they might need to consider activating such controls.

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