Pressure on banks to improve financial product information

By making the relative strengths of banking products clear and explicit in terms of how they contribute to the customer's financial well being, banks could bring about a pivotal change in the nature of the sector’s competition, according to a report published today (Friday April 15).

The conclusion from The Fairbanking Foundation comes as a result of what it describes as an extensive survey of UK banking products, rating each by how well it could help improve the financial well being of the customer.

Coming days after the Independent Banking Commission published its interim report, Fairbanking's study provides a timely measure of how well the UK banking sector is performing its most important function for the benefit of the customer in helping them to manage their money better.

The sector will be under ever-increasing pressure to improve how well their products and services actually help the customer, all without the distractions, inefficiencies and probable failings of yet more regulation.

The report compares credit cards, savings accounts and current accounts, both with and without overdraft facilities, from more than 40 banking groups operating in the UK. Each product is measured against key criteria, identified in Fairbanking's earlier research, that improve financial well being through giving the customer a greater sense of control, whether day to day or in longer term financial planning.

The report that there has been some improvement since Fairbanking carried out its first assessment in February 2010, although it points out that this was from a very low starting point. In Fairbanking's first study, only a tiny number of products even managed to register on the scale.

This time around more products managed to score something against Fairbanking's criteria and a very small number of the ‘leaders' have improved their rating to quite respectable levels. There does, however, remain huge room for improvement, it says.

There have been a considerable number of product improvements in the last year, when compared with Fairbanking's previous report. The Saffron Building Society offers better feedback on reaching a savings goal, Barclaycard has added alerts and other improvements, Lloyds Bank now offers its money manager service on current accounts and Thinkbanking has added a sophisticated payment forecasting feature to its non-debt current account. These four products gained the highest ratings of any products in the report.

‘While it is good to see some green shoots of positive change, there remains vast scope for improvement in how well UK banking products help the customer to manage their money more effectively,’ said Antony Elliott, director of The Fairbanking Foundation.

‘Some optimism lies in the modest improvements we have measured, and in the extent of engagement we have had from most banks while conducting the survey. A couple have even made notable improvements to their products specifically to score better,’ he explained.

‘This is early evidence that our strategy to highlight real differences in products can create worthwhile pressure to compete on product quality, and is not unlike the way car safety standards have been improved beyond all recognition over the years,’ he added.

The Fairbanking Foundation intends to use its evidence based criteria to become an accreditation body, certifying that financial products contain features that are likely to assist customers to manage their money better.

‘The IBC interim report earlier this week highlighted the need for significant improvement to the level of consumer-focused competition in the banking sector, and that is exactly what Fairbanking's Rating and Mark initiatives are intended to achieve,’ said Elliott.

‘Our efforts are already making a positive, measurable difference and have significant potential to change standards in banking for the better. Growing consumer and industry awareness of our Ratings, Mark and other initiatives to clarify and compare the relative strength of banking products for the financial well-being they deliver to the customer could transform non-price competition in the banking sector.

‘This will clearly be to the benefit of the customer and ultimately should be positive for the industry as it seeks to rebuild trust by genuinely acting in customers' interests. We intend to carry out and share more fundamental research into other areas of financial well being as detailed in the report published today,’ he added.