Managing my financial journey
Managing my financial journey

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Managing my financial journey

2.3.4 Comparison sites

Comparison sites are one of the main services to have emerged from this new technology.

Comparison sites are a way for customers to compare the costs and benefits of one firm’s products against another. They provide a relatively quick way to gain quotations from a number of different organisations. Most now also offer a way of buying the product the customer chooses online or via the telephone. This can apply to a range of financial services products (such as mortgages and ISAs) or insurance products (such as motor, household or pet insurance). In effect, comparison sites are a form of brokerage, with financial services firms paying the firm owning the comparison site each time one of their products is sold.

According to Which? the strongest brands currently are Confused [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] Go Compare and Money Supermarket. Note that the consumer advice organisation Which? also, itself, provides financial product comparisons on its website.

Despite this popularity, some firms are making a virtue of not being on the comparison sites by claiming that their products are cheaper as a result, such as Direct Line.

A few years ago concerns raised about these websites were raised by the FSA, which was concerned that customers were not getting the required level of clarity they need to make decisions about which products to buy.

Research by the FSA also highlighted a number of regulatory failings among a number of firms selling insurance policies through price comparison websites. These included breaches of compliance with the Conduct of Business regulations for the sale of insurance and firms not having the appropriate ‘permissions’ to conduct such business. This prompted the publication of new guidelines on internet selling by the FSA (FSA, 2011).

In 2014, however, a review completed by the Financial Conduct Authority (FCA) found that many comparison websites were failing to provide appropriate and clear information to enable consumers to make sound decisions about financial services products. Additionally the FCA found that the websites did not make clear both their role in the distribution service and the nature of the service they were providing. Some sites that were a part of a larger broking group or product provider were not disclosing this clear conflict of interest. The FCA also concluded that many comparison sites were not fully complying with the FSA’s 2011 guidelines (FCA, 2014).

However, despite these issues, comparison sites continue to be popular with customers, and it is likely that the service they provide will be a major factor in the financial services market for the foreseeable future (Booth, 2008).

Activity 2.4

What do you think might be the impact on the market for financial services products of these comparison sites?

Discussion

These websites make it easier for customers to shop around and therefore switch providers on a more regular basis. This makes the market more competitive. It also means that providers are likely to have a higher turnover of customers, leading to higher costs – since it is usually less expensive to keep a customer than gain a new one. This in turn has driven financial services providers to look at ways of driving down their operating costs – or, in some cases, at withdrawing from these comparison sites altogether.

Another impact is that some providers have altered the structure and terms of their products to make them appear cheaper on the comparison sites – for example by heavy discounting, but for only the first year of a debt or insurance product. In these cases, they hope that inertia will lead to a good proportion of customers not moving to new providers after the end of the ‘cheap’ first year.

So while the sites are convenient to use it is important that consumers remember to identify all the features and terms of competing products.

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