Digitalisation of retail financial services
Lower rates, more choice and 24/7 service provision…
...misuse of data and questionable providers
Although a personal consultation with a human adviser is still an important part of the provision of retail financial services, much of the customer journey is becoming digital. We see this as a positive development, but it also involves risks.
Firstly, financial services in the digital domain are always available, financial products can be tailored to the customer’s needs and the barriers to ongoing contact are low. This offers convenience, lower cost and the potential for a better connection between demand and supply.
On the other hand, increasing digitalisation raises issues from a supervisory perspective, for instance with regard to the ethical use of data, the requesting of information on customers and the presentation of information.
Digitalisation is moreover making it easier to offer services from another country, meaning that under current European regulation customers in the Netherlands may be dealing with providers or products from other Member States. This can be beneficial, due to the increased range of products and services on offer.
But other countries sometimes have different rules and provide a different level of protection than that provided in the Netherlands. One example of what can go wrong in the Dutch market concerns foreign providers of pay-day loans at exorbitant rates of interest.
Want to purchase a financial product online?
Be aware of how such a purchase works…
Digitalisation allows providers of financial products to approach you in a more personal way. This offers both advantages and disadvantages. And there are of course rights and obligations that apply to both you and the provider. The following gives a description of a normal purchase, consisting of five steps: recognising a problem, searching for information, assessing alternatives, making a choice and evaluating that decision. The key items of attention in each step are explained.
1. Recognising the problem
A purchase begins with a need for a financial product such as an insurance policy, a mortgage or a bank account. There are all kinds of incentives that affect the products and/or providers that you consider at the time, including online advertising.
With all the information held by Google and Facebook for example, they can specify target groups and make predictions with respect to the preferences of these groups.
This enables providers of financial products to advertise in a very targeted manner. For instance, they can reach people who are likely to purchase a house, or who have just got married.
The advantage is that the advertising you receive is appropriate to your situation, but this can also have undesirable consequences. For example, advertising of loans that are specifically aimed at vulnerable consumers who can be easily influenced.
2. Searching for information
Once you have a rough idea of what you need, you start to look for more information, also online. When you view a product on a web page, the provider decides what information you see and also sees exactly what you click on.
Providers of financial products are of course obliged to provide you with correct and complete information, so that you can choose a product that meets your expectations and needs.
If you want to compare products from different providers, you can go to a comparison website.
This can be useful, because all the available alternatives are shown in a single list. But there is a risk in that not all comparison websites are objective.
Does the site only rank the alternatives on the basis of product features, or can providers pay to be given a higher position in the ranking?
Providers can also present the features of their products in such a way as to ensure that they appear higher in the list. It can therefore be a good idea to consult several comparison sites.
3. Assessing alternatives
Once you have made a decision that you want to purchase a certain product, the purchase process begins. In some cases, you have the option to do this either with or without an adviser. Without an adviser is usually cheaper, but then you have to decide whether the product meets your needs yourself.
For some products, you have to take a knowledge and experience test to show that you are competent to purchase a complex product without taking advice.
This is compulsory for instance when arranging a mortgage, or certain types of investment or insurance.
Engaging an adviser for a review of your financial position, risk appetite, objectives and knowledge and experience and basing their advice on this review is compulsory. The same applies to automated advice. Fully automated advice (robo advice) is not yet commonly available, but this is developing rapidly.
4. Making a choice
This is the phase in which you select the product. Engaging a financial adviser to explain how the product works, its terms and conditions and what you can expect from the after-sales service is compulsory.
Digitalisation makes it possible to tailor this completely to your situation, for instance by providing additional explanation of the information that is most important in your case.
On the other hand, when you purchase a product digitally it can be more difficult to ask additional questions if there is something you do not understand.
Here you also have a personal responsibility. If you do not understand something, you have to search for more information yourself or engage the services of an adviser after all.
5. Evaluate the decision
It is a good idea to continually review whether your financial products are still suitable for you. Digitalisation can help you do this.
With digitalisation, an adviser can more easily stay in contact and update you when new circumstances in your situation mean that you need to change your product.
E-mails and apps make after-sales easier and more accessible, but they can also influence you in undesirable ways.
To sum up, increasing digitalisation is making it easier than ever to purchase financial products and services and creates new ways of influencing your behaviour. You therefore need to stay alert at all times, because this may happen in desirable and undesirable ways.