How can consumers use technology to manage their finances?

Last week, AT8 hosted a Technology Roundtable sponsored by Sammedia, on the use of technology by consumers to manage their finances.

There can be little doubt now about the appeal of the internet to consumers. Many people, young and old, use it for entertainment, managing their social lives, research, and of course shopping.

Does its utility however spread to financial services? There seems to be considerable evidence of consumers’ desire for this to happen.

According to Google, queries on terms related to financial advice and IFAs specifically have grown substantially over the past two years as the recession has sent the public seeking professional help with their finances. Searches on the financial personality Martin Lewis were in the top 100 making him more searched for than David Cameron or Jordan last year! The barrier does not appear to be the appetite for online finance but is about the quality of the supply of these services.

To understand the dynamic we gathered some of the industry’s leading figures to discuss their views on how best to engage the end consumer using technology. For the second part of the technology debate see next week’s Professional Adviser.

Relevance and desire

The discussion was kicked off by Michael Free, CEO of Sammedia. Mike believes passionately that consumers want to manage their finances online but issues lie with the way we, as an industry, communicate with them.

“We are an industry that is in love with tables of data,” Free explained. “Consumers come to us for information and we give them data tables or lists when what they really need is engaging information in graphical format that can be quickly interpreted and understood.

“We expose back office information that we think is important, but the client finds irrelevant. Name, date of birth and address are classic examples. The client knows who they are, where they live and their age, they don’t need to be told this. They need relevant information when they first log on to a site – new wealth for example”.

Mike concluded it was essential financial sites focused on relevance to the consumer, simplicity and creating desire. “If we look at another industry, Apple has challenged conventional thinking. It put music in our pocket and the internet in our hand. They have stolen a market lead and done this largely by focusing on what people really need and design, both the aesthetics and usability – in doing so, they created desire for their products. Our industry also needs to create desire for its services and the only way we will do it is by making our services relevant to consumers’ everyday lives and easy to access.”

Online purchase of products

To create desire and to ensure services are relevant we need to understand the benefits the end consumer gets from technology and with this in mind the discussion moved to focus on how this could be achieved.

“Consumers will use technology to buy products or service for their financial needs if it simplifies the process and makes their life easier,” claimed Verona Smith, head of proposition at Cofunds. “The twenty-four hour accessibility of e-commerce has real appeal to many.”

The panel agreed and gave  real examples of product lines they felt were moving to be electronic. Adrian Bishop, head of E-commerce, Scottish Widows, was convinced while the traditional wisdom saw banking and general insurance moving to be an electronic service the more complex world of Life, Pensions and Investment was moving increasingly in this direction too. Danny Wynn, commercial director at Legal & General agreed: “The overwhelming majority of our ISA sales to new direct customers are online.”

 “ISAs are simple products”, cautioned Ross Dunlop, head of retail E-commerce at Standard Life. “People are comfortable with what they see as simple products, but pensions products are far more complex and are less likely to be bought on line”. Danny concurred: “Pensions are seen as a more serious, long term commitment and as a result consumers rightly seek advice.”

Verona Smith said it was also the amount of money involved that dictated whether a consumer would buy online. She had been talking recently with an execution only broker who said a client had used them for small amounts of investment business for eight years with no contact. The client had received £120,000 unexpectedly and felt uncomfortable investing larger sums of money and had called for investment advice.

An interesting extension of this line of thought came from David Greenall, e-commerce manager at Canada Life.

“There is a process that people go through; high level research, specific product research, then purchase. The extent to which this process is completed online will depend on the degree of comfort the consumer has with online interaction. This in turn is affected by the factors already discussed such as value and complexity. However, this degree of comfort will change over time. They may only use technology for simple products today but as time passes by their comfort will grow and they will start to research more complex products online if not procure them.

“People were nervous of using electronic banking initially but started to use the services to check balances. As confidence grew they have used more and more additional services and now many people use a full range of services including electronic banks transfers.” It will become increasingly important, therefore, for advisers and product providers to participate effectively in the electronic world.

Ray Chinn, head of pensions at LV=, emphasised to gain trust the industry has to solve the argument about ‘relevance’ that was made at the start of the meeting. “If people are buying ISAs online because they understand them we have to simplify our communications generally. For example, we can’t simply tell people that investments can go up or down, we have to put this in the context of value to them and be more open to help them understand the risk – for example, we have to say that in some circumstances they may lose £10,000.”

This train of thought was taken a step further by David Greenall who made an analogy to food labelling – “If a food label says it has 10% saturated fats – the consumer may decide that’s too high, maybe we need something that says this product has 10% risk, something the consumer will understand and quantify easily – and the consumer can say ‘that is too risky for me’.”

Building a community

The group then discussed the link between the propensity to seek advice or to buy online to the level of trust, which in turn is linked to the strength of relationship with the intermediary or product provider.

“If we look at Martin Lewis’ website Moneysavingsexpert.com, we can see a large number of people are reaching out for advice,” stated Adrian. Their relationship started with simple products – help with money saving tips on utility bills – but has since spread over to include complex financial scenarios. The forum on his website is now the 10th biggest social network in the UK. If you look at the forum on the site, some of the questions being posed and then being answered by non-financial experts are quite frightening. The challenge is why financial institutions and IFAs haven’t attracted these same people.”

“It is because as an industry we haven’t embraced technology like social media. Martin Lewis has by building a community with a high degree of trust and with services that are relevant,” added Tessa Lee, operations director at Sammedia.

The discussion came back round to the issue of engaging the client online and encouraging IFAs to support their clients in this manner too. The issue of product complexity raised its head again as a barrier to engaging clients. Phillip Brown, head of retirement products at Partnership, said the industry has to challenge traditional processes: “Insurance companies have simply taken old traditional products and moved them online. What is needed is to re-engineer products to simplify processes.”

He repeated Michael Free’s earlier mantra of: “We must challenge the industry norms and create new products and new processes”. Phillip continued to explain how Partnership was approaching this. They had smashed apart the annuity application process. “Typical annuity sales were unprofitable if below £30,000 both for the adviser and the annuity provider. Our belief is that we need to make it affordable to market anything from £500 upwards. We have achieved this by using our own underwriting experience to reduce the application form from the traditional 20 pages to 10 ‘yes/no’ answers”.

However, Philip added a note of caution: “If you do take a product online, give the option to take the whole process online – don’t send conventional mail for correspondence to people that deal electronically – it is not what they want nor desire.”