Enter the dragons
Don't underestimate the power of switching
This summer, Dragon’s Den history was made. One business idea not only attracted offers from all five “Dragons,” but won “the best deal ever”—£120,000 for a mere 3 per cent of the company. What was the idea that piqued the Dragon’s interest? They passed on the funky wetsuits and the grade one coffee but fought over a website that switches your energy supplier for you.
So is this new website and others like it the answer to the big financial capability questions? How do we motivate and engage people to take control of their finances and (in this case) to save money by switching providers on a regular basis? The answer now seems to be we don’t—we simply do it for them. But is it really that simple? Can new technology replace the need for financial capability? Can an app or a website really be trusted to make life decisions for us? And if they could, would we want them to?
At The Money Charity we provide financial capability products and services. Rather than make decisions for people or tell people how they ought to manage their money, we get people to think and talk about money and to think about what being on top of money can help
In recent years new technology has created a plethora of products that claim to make our financial lives easier. These include current accounts from the challenger banks. They offer new functions such as notifications if you spend more than a target amount. They also offer budgeting and savings functions as well as tools for the self-employed.
Other functions include the ability to see all your accounts together in once place, and automatic savings programmes, which analyse your outgoings and transfer small amounts of money into a savings account without you even noticing.
There are also apps and websites that analyse your utility bills and automatically switch your provider, to ensure you get the best deal.
Many of these innovations will make life easier for those who use them and help people stay in control of their cash. And there is so much more they could do. If they can swap your gas bill, then why not savings products, insurance or even mortgages? And combining the two so automatically saving money on outgoings, then retaining the difference and turning it into real savings must be the natural next step. That way people will build that elusive savings pot without even noticing.
But is that sense of control real or just an illusion? In reality most financial problems are caused by unexpected life shocks such as redundancy, divorce or bereavement. Can a bot really be clever enough to help negotiate these sorts of unexpected life events? And without a certain level of understanding of the issues, people can become dependent on technology, abdicating responsibility for their financial lives. Many of the newest ideas invite consumers to hand over control to tech. They could therefore be accused of plastering over rather than addressing the problems of low financial capability, complex products and poor deals for loyal customers.
Security and whether to trust these new products still remains a stumbling block. Or worse, it doesn’t, and individuals rush into products they don’t understand: presented on websites as 100 per cent safe, until things go wrong and the consumer suffers. If traditional product complexity is replaced by new products which are just as complicated, then are we any further forward?
While security and transparency issues remain, only the tech savvy millennial will benefit. The names of the products themselves (often fruit or food based), the need for a Facebook account and to be happy conducting your finances on Facebook messenger or the often childish commands and instructions within the programmes are as off-putting to some as they are appealing to others.
To be eligible for the Dragon’s new service you must have access to the internet, be happy to forgo paper bills, manage your account online and pay by direct debit. Overall though, there’s much to love about the new array of fintech on offer, and most people who use it become advocates. And so we must try harder to really make them accessible to those who could most benefit and (as the Cass switching service does well) continue to find ways of making processes and products simpler in themselves.
For these products to really reach their potential and help those who need money management support most, more than a cash injection from a Dragon is still needed.
Banking on Change is a publication which examines how we can develop a comprehensive policy approach towards financial inclusion. The report features contributions from the likes of John Glen MP, Peter Dowd MP, Anne Pieckielon, Chris Pond and Guy Opperman MP.
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