A growing number of consumers – including people with long-term conditions such as dementia and cancer – could be at risk of getting a bad deal from banks because the industry doesn’t pay enough attention to them, new research warns today.
The Social Market Foundation think-tank (SMF) says that financial regulators and the financial services industry focus too much on trying to get customers to switch their current accounts and don’t think enough about “vulnerable” consumers who are at risk of getting a bad deal because of their financial, personal or medical circumstances.
The new SMF report, Switching the measure, supported by Bacs Payment Schemes Limited (Bacs), says that the numbers of vulnerable consumers could increase, because:
- the UK has an ageing population – the proportion of people over 65 will rise from 17.8% in 2015 to nearly a quarter by 2045. An older population means more people are living with long-term health conditions such as cancer and dementia. Cancer patients and others with long-term conditions may see their incomes drop, their costs increase and their credit rating fall, while dementia patients may be unable to recall passwords and account details, be at risk of increased fraud and lose the ability to communicate their needs.
The number of UK citizens with dementia is expected to rise to 1.15 million by 2025, according to Age UK. The number of UK citizens with cancer is projected to rise from 2.5 million today to 4 million by 2030, according to Macmillan Cancer Support.
- unscrupulous firmsmay be able to manipulate new technology to exploit vulnerable consumers.
- economic insecurityis on the rise, with the number of people on zero hour contracts or working self-employed having increased over the last decade and set to continue.
These factors could increase the numbers of people whose behaviour would make them ‘vulnerable customers’, such as:
being digitally excluded and operating ‘off-line’ – this means you’re unable to seek out the best deals and full range of suppliers. In the UK, 9% of the adult population have never used the internet they are likely to face significant disadvantages when it comes to accessing the best deals.
being a repeat user of overdrafts and using unarranged overdrafts – this means you face unnecessarily high costs and charges. Around 5% of consumers are overdrawn for nine or more months a year. This can lead to serious and long term financial consequences, particularly for those with low level financial resilience.
being unbanked and operating in cash – this means you’re excluded from a core means of transacting with services in the twenty-first century. In 2015/16, 1.52 million UK adults remained unbanked.
The report makes a number of recommendations to tackle the looming increase in vulnerable consumers:
– To tackle and reduce growing financial vulnerability, government should monitor providers of essential services, such as energy, water and bank accounts to make sure have proper procedures in place to help support vulnerable consumers – and reward those which meet standards with a quality mark.
– Companies and regulator should share data more freely to identify vulnerable customers. Effective data sharing could help ensure that vulnerable consumers receive requisite levels of support without the burden and stress associated of notifying multiple providers about their changes in their circumstances.
– The financial services sector should focus more on flexible money management putting vulnerability at the heart of product design, with government going further to support commercial enterprises that are developing budgeting accounts.
It also makes eight recommendations to help regulators, suppliers, third parties and politicians identify vulnerable consumers such as digital engagement among vulnerable groups, the proportion of consumers who regularly use arranged or unarranged overdrafts and customer satisfaction among vulnerable groups.
SMF director James Kirkup said: “Markets which do not deliver good outcomes for the vulnerable are not fair markets. Good policy and practice can only protect the vulnerable if they can be identified accurately. Our recommendations show how this can be done effectively.”
The author of ‘Switching the Measure’, SMF economist Kathryn Petrie said:
“People who need a better deal are at risk of getting bad deals because banks and regulators aren’t focusing on what makes them vulnerable consumers.
“We need some new thinking to make sure that these vulnerable consumers don’t end up being further disadvantaged.
Director of Product & Strategy at Bacs Anne Pieckielon said:
“A truly fair and effective market is one that benefits all consumers and not just those who are the most financially engaged, capable and literate. While we are hugely proud of the Current Account Switch Service and its role in delivering a more competitive current account market, we are also conscious that those who stand to benefit the most from switching are often the least likely to do so.
“Bacs is committed to delivering a more competitive current account market for everyone and the SMF’s vital research shines a light on some of the barriers that vulnerable consumers face and may face in the future. There is no such thing as an ‘average’ consumer and we believe that focusing on the distinct behaviours consumers exhibit rather than simply who they are, is key to that goal.”
NOTES TO EDITORS:
- About the Social Market Foundation:
The Social Market Foundation (SMF) is an independent, non-partisan think tank. We believe that fair markets, complemented by open public services, increase prosperity and help people to live well. We conduct research and run events looking at a wide range of economic and social policy areas, focusing on economic prosperity, public services and consumer markets. The SMF is resolutely independent, and the range of backgrounds and opinions among our staff, trustees and advisory board reflects this. https://www.smf.co.uk
- About Bacs
Bacs has been maintaining the integrity of payment related services since 1968, with responsibility for the schemes behind the clearing and settlement of UK automated payment methods, Direct Debit and Bacs Direct Credit, as well as the provision of managed services for third parties, such as the Cash ISA Transfer Service, and the development, management and subsequent ownership of the Current Account Switch Service. More than 120 billion transactions have been debited or credited to British bank accounts via Bacs since its inception; in 2016, nearly 6.25 billion UK payments were made this way, while a new record was set on 30 June 2017 with the number of transactions processed by Bacs in a single day reaching a high of 111.7million. A not-for- profit entity which has maintained carbon neutral status since 2012, Bacs is a membership company limited by Guarantee. For further information please visit www.bacs.co.uk.
- Interviews/media enquiries:
For interviews with report author SMF economist Kathryn Petrie, please contact SMF communications manager Mercedes Broadbent on firstname.lastname@example.org // 07425 609148 // 020 7222 7060 or David Mills SMF communications director on email@example.com
Eight recommendations to better identify vulnerable consumers in the current account market
The report identifies eight key measures that would collectively give regulators, suppliers, third parties and politicians a much better insight into the performance of the market for those most at risk in the market.
- Continuity in market participation of the newly banked:There is evidence that many of those who are unbanked have previously held current accounts but have subsequently decided to remove themselves from the sector. Continuity is a signal that the newly banked are experiencing better outcomes than when they operated in cash.
- Utilisation of bank accounts: Monitoring how those with basic bank accounts interact with the market is just as important as the number opening accounts. Monitoring whether consumers are opting to use direct debits and making card payments will allow us to see if these consumers have successfully moved away from cash and are obtaining the benefits of being banked.
- Passive and active consideration of switching:Passive consideration means a consumer has thought about switching and active consideration means they have taken time to understand the benefits of switching. Measuring these in conjunction with headline switching rates will ensure banks are motivated to innovate and remain competitive.
- Take up of different products:Here, the metric would focus on the movement from unarranged to arranged overdraft, and the variety of products on offer for the digitally excluded.
- Awareness of relevant charges: Overdraft users are a large group, regulators should worry about those who are unaware of the charges. This would encourage banks to be more open in the way they communicate overdraft fees with consumers, building upon recent announcements relating to fees on unarranged overdrafts.
- Proportion of consumers who regularly use arranged or unarranged overdrafts: Regular users of arranged and/or unarranged overdrafts can be subject to high fees. Monitoring the proportion who regularly go overdrawn and the average fees paid should promote banks and policy makers to think about how financial resilience can be improved for these consumers.
- Digital engagement: Digital engagement goes beyond the availability of digital services, it focuses on those who do not use the internet and those who use it but do not feel comfortable using online banking. It is important that we continue to improve digital skills and confidence so that the benefits of technological change can be passed on to all consumers. Monitoring how those in rural communities interact with their finances is likely to be particularly important.
- Customer satisfaction: Measuring customer satisfaction is not new, however there is merit in measuring the satisfaction of those who belong to specific vulnerable groups, such as those with long-term conditions or fatal diseases.