18 December 2015
Can the FCA embarrass banks into being good?
Earlier this month, the Financial Conduct Authority published the conclusions of its cash savings market study. It included some sensible new measures to force banks to be clearer with their customers about the interest rate they're earning - as well new rules to speed up the transfer process between savings accounts.
But perhaps the most interesting remedy was its decision to start trying to embarrass banks and building societies into offering better savings rates. It's doing this by publishing tables which show the lowest interest rate offered by each savings provider - across a range of different types of accounts.
Dragging banks into the Sunlight
It calls this its "sunlight remedy" - as it shines a light on some of the bad interest rates being offered across the market. The idea is not so much that savers will look at these tables - but that journalists and people like me will draw attention to the banks who offer the worst rates. And in that regard, it has been fairly effective. Most newspapers have written something or other about the worst offenders over the past few weeks. But I'm not convinced that it's likely to make any difference.
In a market where a large number of banks are paying poor rates - especially on accounts that are closed to new business - there's safety in numbers in these tables. There are a few outliers - such as Skipton (a building society, no less!), TSB and Danske Bank - who are are still paying 0.01% on some accounts, and may well change their tune after the negative publicity. But there's many more providers paying a not much more respectable 0.1% - and for those, there's little incentive to do any better now that they can see they are safely buried in a cluster of competitors.
There's also a risk that some of those who are currently paying more may decide that there's little downside to slipping back into the pack.
Can you see the light?
I can't help feeling that there's something rather feeble about a "sunlight remedy" when it's executed like this. If it's only for the benefit of the media and other commentators, then the outcome is unlikely to be very profound. There's no point shining the sun on something if only a few people can see it through a tiny window.
Take the Financial Ombudsman Service complaints data - which is published every six months. When it was first released, journalists would regularly write stories about who the worst offenders were. Unfortunately, the sheer volume and complexity of the data meant that it wasn't always the worst offenders who got called out. As time went by, coverage of the complaints stats lessened - and today, the Ombudsman data doesn't make nearly as much of a splash when it's published. The media are easily bored - and once they've written several times that Bank X or Bank Y has a poor record on complaints, they're less likely to want to write the same story again in six months time.
But a sunlight remedy can be genuinely market-changing if the information is directed at consumers. This article is not a pretense to blow Fairer Finance's trumpet, but I think that using the Ombudsman complaints data in the way that we do - packaging it up so that consumers can make easy comparisons between brands - is much more potent, and more likely to change market behaviour.
Customers are the key to change
We know that our ratings are starting to influence what consumers buy - and that gives companies a real reason to start doing a better job at dealing with their complaints.
I'm not suggesting that the FCA create consumer league tables. But I do think they should be producing much more data about companies so that it can be used by organisations such as ours to raise standards.
The new savings data is fine - but it's a bit binary. It shows the lowest APR on each provider's open and closed savings accounts. But it doesn't tell you how many accounts they have paying low interest rates - and it doesn't give any indication of their average rate.
I'm all for the idea of changing markets with the help of some sunlight. But I think the FCA needs to be a bit braver and bolder - and work harder to engineer uses for its data which ensure that consumers' decisions are influenced by the information that it releases. Banks can weather the odd piece of bad publicity - it's an occupational hazard. But they'd find it much hard to stand firm if they stopped winning new customers on account of their bad habits.