Crunching

[Dave Birch] I went along to the Financial Services Research Forum summer seminar in London, which was about “Responsible Lending and Borrowing”. I thought I might pick up a few ideas for new products for our financial services customers and I was curious to understand how some of the effects of the post-credit crunch economy might bound new service development. And I was curious to see some of the speakers, who were clearly going to approach the issue from perspectives that were unfamiliar (to me).

The big picture was presented by the Future Foundation who said, essentially, that consumers remain cautious and have been paying down debt, particularly on mortgages, personals loans and credit cards. What I also noted was that they were very positive about the opportunities that might arise because of new entrants into the financial services sectors, one of the themese that emerged from the roundtable series that I ran as part of the CSFI Fellowship programme. Now, on the one hand this is not particularly radical thinking…

I also got some good input from one banking expert this week, who reckons that Virgin will be a ‘mortgage bank’ like the Abbey and Halifax were a decade ago; and Tesco will be a massive data mining financial warehouse of risk analytics for cross-selling insurances and loans to their Clubcard holders.

[From The Financial Services Club’s Blog: More on Tesco, Virgin and Metro Banks]

…but on the other hand, I wonder if we (ie, people in the industry) are thinking far enough outside the box, because the nature of new entrants is likely to mean real changes in the nature of some products. I tend to focus on the payment-related products and value-added services, of course, but the dynamics presumably extend beyond that.

Angela Sasse and Hazel Lacohee from PVNets gave interesting presentations on different aspect of privacy in financial services. I did disagree with Hazel slightly, because I’m not sure that some form of “basic bank account” is the first step on the road to financial inclusion, I still think that we should be shifting the focus to separate transaction banking further from relationship banking and then replacing transaction banking with transaction accounts (ie, prepaid accounts with card and mobile front-ends) as the first rung on the inclusion ladder (as I heard someone else call it).

All in all, an interesting event. I’m not sure we’re any nearer creating or maintaing a culture of responsible lending, but I am more optimistic than I was at the start. And the talk by Paul Lewis of Moneybox Live was outstanding, especially his points about the way bank charges are represented and understood.

On that topic, the OFT gave a review of the changes in consumer credit legislation in recent times, which seemed mainly to do with the credit providers giving detailed information to borrowers, but it’s not obvious to me that this will make much difference in a country where a high proportion of people are financially illiterate and a substantial proportion of people are functionally illiterate. I happened to be reading about this in another context:

Research shows that 53% of adults in Wales have numeracy skills below the level expected of an 11-year-old.

[From BBC News – ‘Lessons to learn’ in numeracy teaching says Estyn]

I don’t think that giving these people more leaflets will help. People don’t understand what an APR is, so printing it in bigger letters isn’t going to help. As I’ve heard people say before, since 50% of people don’t know what 50% means, it’s a long haul. And it’s not easy: people who don’t understand APRs are not all thick, as one of Paul’s examples that i mentioned on Twitter shows, and it’s worth repeating here. Imagine you are down the pub and you’ve run out of money, so you say to a friend “lend me twenty quid and I’ll give it back to you in a week when I get paid, and I’ll buy you a pint for the favour”. If a pint of beer costs £1.40 (let’s pretend we’re up North, or in 1990) then what is the APR on your payday loan? I leave it as an exercise to the reader, and there is no prize. However…

On a not entirely unrelated topic, for reasons too complicated (and dull) to detail, Consult Hyperion is a Medici-style sponsor of Broke Britannia!, a musical about the credit crunch written by David Shirreff of The Economist.

The credit crunch as musical, with vicious lyrics and great songs. No character is spared, from doomed bankers such as Fred the Shred to the jokers who were meant to control them – Alistair Darling, Mervyn King and Co. This is a fiasco so tragic that the only way to relive it is pantomime. Little Red Riding Hood, Mr Wolf and the Genie take you through a tale of fantasy and delusion that became only too real. In this zero sum game do the bankers get their comeuppance? Surely that would be too incredible!

[From Broke Britannia! | Edinburgh Festival Fringe 2010]

In line with our well-established and customary generosity, we have naturally set aside a pair of tickets for the performance on Friday 27th August 2010. So if you’re going to be in Edinburgh on that day and you’d like to come along and enjoy the show, and meet a whole bunch of Consult Hyperion folks and friends as well, you merely need to be the first person to respond to this post with the answer to the following question: who is the odd man out in this list, and why?

• Lord Stevenson: former chairman, HBOS
• Sir Fred Goodwin: former chief executive, RBS
• Andy Hornby: former chief executive, HBOS
• John McFall MP: chairman of Treasury Select Committee
• Alastair Darling: former Chancellor of the Exchequer
• Sir Terry Wogan: presenter of Radio 2’s Breakfast Show

If you’re not lucky enough to win, you can still buy tickets here (if there are any left).

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]