Three things for financial services procurement to consider when engaging with online price comparison providers.
The aggregator model is probably here to stay, so what should buyers tasked with managing this area of spend be thinking about in 2015?
Here are three suggestions of where procurement should be paying attention to these disruptive tools.
Reputation Risk
"I think it is a case of the [price comparison] companies deliberately misleading potential customers in order to maximise profits." This is the view of UK PCW review committee member, Ian Lavery, quoted in online consumer advice publisher This is Money. The so-called top five UK PCWs have come under heavy fire this year from regulators and government officials for their apparent malpractice. They are the subject of blanket criticism, accused of misleading customers en masse either by hiding deals that do not pay their commission, or publishing confusing information.
This is a question of due diligence. First, on-boarding of these suppliers should be subject to a procurement process. Regulators now demand of financial institutions that all suppliers be subject to equal and adequate levels of oversight (depending on the level of spend and associated risk). As gatekeeper to (most of, in most cases) the supply base, procurement is increasingly looked upon by the wider organisation for its ability to ensure this. Having control over the relationship is the first step to adequate performance and risk management.
Right-to-audit clauses are now commonplace in many supplier agreements in the financial sector, and contracts with online aggregators should be no different. UK regulator the Financial Conduct Authority’s (FCA) very recent review into misleading insurance sales practices – among online aggregators and Financial Institutions (FIs) alike, it should be noted – highlights the pressing to put systems in place which ensure oversight of suppliers’ processes and controls; the impetus for which is very much on the FI.
Whose data is it anyway?
Allowing online aggregators to advertise the organisation’s products essentially amounts to outsourcing website ‘click-throughs’. The consequent loss of customer data and insight is of heightened concern, then, directly as a result of the emergence and use of these companies as suppliers.
FIs are both a customer and possibly the biggest threat to PCWs; if buyer organisations refuse to cede more power to these suppliers, and refute this relatively unripe business model, without financial products the PCW business would cease to exist. However, PCWs will not likely welcome any data-sharing clause, given the competitive advantage brought about by access to this data, especially as some PCWs are in fact under the ownership of, what in this relationship would be called ’buyer organisations’.
The personal touch
Research published in 2013 by UK advice bureau Consumer Futures (now merged with Citizens Advice) revealed some interesting findings. The top reason for consumers choosing not to use PCWs, for 63% of respondents, was that they would prefer to engage with the provider directly. This means you, the buyer organisation.
Consumer confidence in the financial sector has clearly taken a dent in the years following 2007/8, but, it seems, not so much as to persuade consumers that interacting with third-party providers of financial products is the way forward. Further, with the use of these suppliers there is the risk of “self-cannibalisation (as consultancy Accenture puts it), whereby consumers are using prices quoted on PCWs to inform negotiations with their financial providers.
Can the sector hope to wean itself off reliance on these suppliers? After all, it already works for some.
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This article is a piece of independent writing by a member of Procurement Leaders’ content team.
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The views expressed in this post and throughout the series are the autor's own and not intended to reflect the views the YQ Matrix platform, its users or any associated organisations.
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