Last week’s news that Banks have decided not to fight claims that they mis-sold Payment Protection Insurance (PPI) is a signal that they are prepared to accept the huge cost of compensating customers who have bought a product which is not suitable for their needs.
We first documented the confusion and anger PPI caused for customers in our Online Shopping Study on Personal Loans back in 2005. In the research we followed a group of potential loan customers through the process of searching, choosing and applying for a personal loan.
Two main areas of inappropriate selling became evident in that sales journey:
- Bundled PPI: Many lenders defaulted their calculators to show a monthly repayment that included the PPI premium in with the loan repayment, and it wasn’t always easy to spot how to get a quote without PPI. Even if you did find this, it was often hard to ‘opt out’ without triggering a number of fairly intimidating warnings about not taking protection.
- No ability to interrogate the PPI product: It was common practice for PPI to be offered under meaningless names, such as ‘Gold Cover’ or ‘Silver Plus’, with little ability to interrogate further. There was often no clear content that would explain what PPI was, why it was potentially valuable, and most importantly, who would be covered and in what circumstances.
Selling PPI in a more transparent way became one of the main recommendations from our research. Our design principle in the report was ‘Let PPI sell itself’ – this was pretty good advice. We even went on to show how this could be done: improving information resources and allowing customers to stream themselves on the basis of their attitudes to PPI. However, while there was poor oversight from the regulator (what were they doing for over a decade?), the short-term gain from selling PPI inappropriately outweighed the preferences and opinions of customers.
The lesson here is that user research will tell you something needs fixing long before the courts or the regulator does. Banks need to decide how they trade off the long-term value of their brands against short-term sales revenue. The last decade was littered with bad calls in this area: pensions mis-selling, unfair current account charges, credit card penalty fees, sub-prime and self-certification mortgages. All of these have started to persuade many consumers that banks are their adversary, not a trusted partner.
Right now the high street banks are starting to show a much greater focus on being customer-centred. The opinions of customers have a much better chance of ‘getting through’ to senior decision makers. The big question for the next decade is how much influence those opinions will carry at board level. Certainly a few thousand pounds on regularly checking the customer experience of your Personal Loans sales process looks money well spent compared to having to set aside millions to be paid out in compensation.