Consumer Appetite for Crossborder Shopping in Financial Services

50 Pages·2010·1.32 MB·English

Consumer Appetite for Cross­border Shopping 
in Financial Services 
A Report Prepared for the FSA 
Final Report – 17/04/2010 
Steve Nuttall, Anthony Chaimowitz and John Cogswell 
This document does not represent the point of view of the Financial Services Authority. 
The interpretations and opinions contained in it are solely those of the authors.
Table of Contents 
_____________________________________3 
Executive Summary
_______________________________5 
Introduction and Background
_________________________________9 
Scope and Methodology 
1.1 Stage 1 Qualitative Research __________________________________________10
1.2 Stage 2: A quantitative survey__________________________________________10
1.3 Stage 3: A supplementary quantitative survey__________________________11
1.4 Stage 4: Intermediaries qualitative research____________________________11
1.5 Interpretation and timing ______________________________________________11
1.6 Cross­border: benefits, barriers and disadvantages _____________________13
1.7 Connections__________________________________________________________19
1.8 The benefits of cross­border shopping __________________________________20
1.9 Switching points and product pricing___________________________________21
_________________25 
Barriers in Financial Services cross­border Shopping
1.10 Hard barriers ________________________________________________________25
1.11 Soft barriers _________________________________________________________27
1.12 Country Hierarchy___________________________________________________31
1.13 Overcoming barriers_________________________________________________32
1.14 Impact of Financial Intermediaries on Decision Making________________33
__________________________31 
Conclusions and Policy Implications 
___40 
Annex 1 Methodological Note about FSA Cross­border Transactions Study 
2.1 Understanding Trade Offs ____________________________________________42
2.2 The Trade Offs_______________________________________________________42
2.3 Mortgages __________________________________________________________44
2.4 Savings Accounts ___________________________________________________40
2.5 Investment Accounts ________________________________________________41
2.6 Travel Insurance_____________________________________________________50
Page 3 of 50 
Executive Summary
• The aim of European Union policy in the area of retail financial services is to
enable consumers to shop around all over Europe for the best savings plans,
mortgages, insurance and pensions with clear information available to
compare products
• Key interventions in EU policy to date have largely focused on addressing
supply side constraints that restrict trade in financial services.
• While increasing numbers of consumers in the UK are looking outside their
domestic market for low cost, low risk products there is a very limited and
undeveloped market for financial services.
• Current levels of cross border transactions for financial services remain modest
with less than 1% of consumers having bought a financial product at a
distance from a company situated in another member state 1.
• General consumer motivations for cross border transactions centre on the
search for greater value and enhanced consumer choice while not
sacrificing consumer protection should something go wrong. In financial
services consumers will be looking for reduced transaction costs, superior
returns and tax efficiency and in certain circumstances convenience and
local specialist knowledge
• Consumers are currently motivated to consider and engage in cross border
purchase when there is an underlying need. Connections with other EU
countries are a key driver in influencing the decision to purchase cross border,
suggesting that many purchases are made out of necessity rather than
because of any perceived inherent benefits.
• The EU area is not perceived as being homogenous, and cultural perceptions
of member states vary. The domicile of the product or firm plays a key role in
consumer consideration of cross border product offers.
• There exists a very high level of loyalty to UK providers, and where switching
might occur it is at a price/return differential that is unlikely to be
commercially attainable.
• Removing perceived hard barriers to cross border shopping, for example by
working towards common regulatory frameworks and dispute resolution
procedures, is seen as a necessary pre­condition that consumers expect
1 YouGov survey 2008
Page 4 of 50
policy makers to address. However, such actions are by no means sufficient
to change consumer attitudes.
• Cross border purchase of financial products is seen to carry a degree of risk
over and above that involved in buying products from UK­based providers
and these risks outweigh any potential benefit to be gained from buying cross
border.
• In addition there exist powerful underlying attitudinal barriers which play a
critical role in shaping the mindset of consumers. These cannot be overcome
through regulatory policy intervention.
• Financial advisors (including Independent Financial Advisors or IFAs) play a
key role in influencing the decisions and choices consumers make, and are
an important distribution channel in the UK. Consumers are willing to follow
the advice of a trusted advisor and would purchase from a non UK provider if
they were advised to do so. However, few IFAs would offer such advice.
• The evidence shows that there exists a complex set of inter­locking factors
which mean that there is unlikely to be a single policy measure that would by
itself significantly contribute to the growth in a single market for financial
services. Policy intervention to address supply side contraints and establish a
level playing field for regulation and protection is likely to have only a very
limited impact on consumer behaviour
• There is a strong argument that policy intervention should work with the grain
of existing consumer behaviour where this delivers the broader aims of
increasing competition and consumer choice.
• Given the lack of consumer appetite toward buying in a true cross border
situation and the much stronger acceptance of financial product purchase
from a provider not based in the UK but with local distribution, policy should
be directed to supporting this form of product purchase.
• The evidence suggests that the vast majority of UK consumers are in practice
currently unlikely to take up the ‘benefits’ of a more open market in financial
services even if that market can be created.
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Introduction and Background
The European Commission’s White Paper on Financial Services2 published in 2005 set
out an ambitious strategy to achieve a single European market for financial services,
with a particular focus on barriers which inhibit the smooth functioning of a single
market for retail financial services:
“...while the FSAP focused mainly on the wholesale market, retail integration
will become more important over the next period. Barriers associated with the
use of bank accounts will be examined, with a view to enabling consumers to
shop around all over Europe for the best savings plans, mortgages, insurance
and pensions, with clear information so that products can be compared.” 3
Building on this White Paper, the Commission published a Green Paper in 2007
specifically addressing retail financial services4 . This Green Paper noted a number of
indicators which demonstrated that integration in retail financial services had not
reached its potential. These included:
• modest cross­border activity (in research carried out for the Commission, 85%
of respondents spontaneously indicated that they had never purchased
financial services from firms situated in another Member State and 75% said
they would not seek to obtain financial services put to them from a firm
located in another EU member state) 5 . Moreover, less than 1% claim to have
bought a financial services product at distance from a company situated in
another member state;
2 WHITE PAPER Financial Services Policy 2005­2010, European Commission, 2005. 
http://ec.europa.eu/internal_market/finances/docs/white_paper/white_paper_en.pdf 
3 EU financial services policy for the next five years EC Press Release 05/12/2005 
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/05/1529&format=HTML&aged=0&language=EN&guiLangu 
age=en 
4 GREEN PAPER on Retail Financial Services in the Single Market European Commission 30 April 2007 
5 Public Opinion in Europe on Financial Services. EuroBarometer  special report. August 2005 
http://ec.europa.eu/consumers/cons_int/fina_serv/cons_experiences/report_eurobarometer63­2_en.pdf
Page 6 of 50
• wide variations in prices;
• restricted product diversity and choice;
• large variations in market performance.
Although the Green Paper recognises that consumer behaviour and preferences
may be a factor in limiting market integration, the Commission considers that further
reforms may be necessary to make markets work better for consumers. Industry
responses tend to favour approaches where the benefits of integration for
consumers are best achieved by promoting market­led initiatives that free up
competition between retail financial product providers, rather than pursuing
opportunities for consumers to actively purchase retail financial products cross­
border6 .
While some work has been undertaken to help stimulate greater demand from
consumers, the key interventions to date have largely focused on addressing supply
side constraints that restrict cross­border trade in financial services. There seems to
be an implicit assumption that once these barriers are removed, the volume of real
cross­border transactions (i.e. where consumers buy products and services at a
distance from a provider or intermediary based in another EU member state) will rise
as consumers become aware of a greater range of product offerings from providers
operating outside national boundaries and exercise choice in their search to obtain
quality at the best possible price.
This assumption may underestimate the strength of consumer resistance to a cross­
border offering for financial services purchases, and overestimate the level of trust
and confidence that consumers have in offerings from firms based outside of
domestic borders. Research undertaken by the European Commission has shown
that the main barriers appear to be lack of information and language problems.
However, this research does not dig deep enough to understand the real
motivations and drivers affecting resistance and acceptance of cross­border
financial services shopping, comparisons between financial services and other
goods and services, and the magnitude of price differences required to persuade
consumers to switch to a product available from a provider or intermediary based in
another EU member state.
In order to address this information gap, the FSA appointed YouGov Financial
Services Consulting to establish a benchmark report which measures the extent to
6 See for example response from Council of Mortgage Lenders. www.cml.org.uk/cml/filegrab/EC­ 
retailfinancialservicesgreenpaperresponseJuly07.pdf
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which UK consumers would consider shopping cross­border with regards to different
financial services products. This study additionally investigates what factors tend to
drive consumer appetite for cross­border shopping (e.g. cultural familiarity vs. value
for money vs. product choice).
At the outset, we agreed a working definition of a cross­border financial transaction
with the FSA which satisfied one of the following scenarios. A consumer living or
working in country A buys a financial product/service:
• From a firm in neighbouring country B;
• At a distance (phone or internet etc) from a firm in country B;
• From a firm owned and operating in country A via an intermediary owned
and operating in country B
• From a firm owned and operating in country B via an intermediary owned
and operating in country A
• Consumer buys product/service from firm owned and operating in country B
via an intermediary owned and operating in country B
These definitions were used primarily to ensure there was an agreed working
understanding of the types of transactions that could be reasonably classified as
cross­border. However, it was important that we did not position these definitions in
the minds of survey respondents as we felt it was important to establish how
consumers themselves perceive, define and experience a cross­border transaction
and assess how well these perceptions and experiences matched up against our
definitions.
This research sought to address the following key questions:
1. How open are UK consumers to the prospect of buying financial services
products cross­border and from different EU member states?
2. What types of cross­border transactions would UK consumers be most likely to
consider?
3. What types of experiences have consumers had of cross­border shopping
(both financial services and other markets)?
4. How do consumers think cross­border transactions in financial services
markets compare with other markets?
5. What are the main factors driving positive and negative views towards cross­
border shopping (both financial services and other markets)?
6. To what extent are familiarity and personal connections factors driving
underlying attitudes and behaviours?
7. What are the perceived benefits from cross­border shopping in financial
services?
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8. What pre­conditions need to be in place before consumers would consider
shopping cross­border?
9. To what extent are consumers familiar with leading European financial
services brands that are based outside of the UK and to what extent do they
trust these brands?
10.To what extent does brand familiarity and attitudes towards different
countries of origin shape consideration of cross­border offerings and
underlying levels of trust?
11.What factors would be likely to lead to a change in consideration of
shopping cross­border and what kind of trade­offs would consumers need to
make in order to make cross­border shopping a more likely consideration?
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Scope and Methodology
The study focuses on the following groups of consumers:
• Those who have recently purchased or are in the market for the range of
products in scope
• Those who currently hold the range of products in scope and would either
definitely consider or definitely not consider a cross­border purchase.
• Those who have a “significant relationship” with another EU country.
The following products were considered:
• Long Term Savings (incl. Pensions)
• Investment Products
• First Charge Mortgages on Main Residence (and any second homes owned
abroad)
• Insurance Products (Complex and Simple)
• Personal Loans (incl. Secured Loans and Credit Cards)
• Retail Deposit Savings Accounts
We consciously decided to limit the research with consumers to those regarded as
“being in the market”7 for the target range of products, rather than a survey design
based around a nationally representative cross­section of the population as a
whole. A survey that focused on the views of the population as a whole would
include many people who have no experience or understanding of the products in
question, potentially have no underlying needs for which they would seek advice,
and consequently would not be able to offer an informed opinion about choices
they might make or providers they might choose. Conversely, a sample based
around actual or probable consumers should provide more robust evidence about
likely adoption of a cross­border product offering and a richer understanding of the
barriers that need to be overcome.
A frequent limitation of many research designs which seek to focus on market
participants is the difficulty involved in identifying and recruiting target groups due to
low incidence in the population as a whole. The recruitment process can add
7 By this we mean consumers who have taken out a qualifying product within the last two years or are planning to take a 
product out in the next six months.
Page 10 of 50
significant costs and extend project timescales which is exacerbated when looking
to recruit across a range of product types. We overcame this problem by running
two large scale screener surveys gathering information about a range of financial
product holdings and attitudes to cross­border transactions that were sent to all
220,000 active YouGov panellists in January and May 2008, each yielding around
70,000 respondents.
We designed a three stage methodology that sought initially to understand
consumer views, concerns and experiences of cross­border transactions through
qualitative research, provide more quantitative assessments of consumer opinion
and finally incorporate the views of retail intermediaries who play a key role in
product distribution and delivery of advice to consumers
1.1  Stage 1 Qualitative Research
An initial qualitative exploration of the key issues was conducted amongst four
different groups to understand the main concerns among consumers and provide
insight into their cross­border experiences. These groups were made up of the
following type of respondents:
• Group 1 held selected financial product(s) or were in the market for one in
the next 12 months. They would consider cross­border purchasing for all the
financial products they hold.
• Group 2 held selected financial product(s) or were in the market for one in
the next 12 months. They would NOT consider cross­border for any financial
products they hold.
• Group 3 held selected financial product(s) or were in the market for one in
the next 12 months. They would consider cross­border for SOME of the
products they hold but would NOT consider for others.
• Group 4 consisted of consumers who have a SIGNIFICANT RELATIONSHIP with
another EU country and who have either bought, or tried to buy, a financial
product cross­border.
1.2  Stage 2: A quantitative survey
Our main programme of quantitative research was based on interviews with 3,507
people who were “in the market” for a range of financial services products. This
covered a cross section of consumers who are either recent or prospective
purchasers of the financial products within the scope of the study. A minimum of 500
interviews for each of the six main product categories were conducted. In order to
measure the extent to which a hierarchy of countries exists within the EU in relation to
the provision of financial services and to quantify the extent to which UK consumers