April 18, 2017

Digital Comparison Tools: Balancing Innovation and Regulation

By Tony Dean Performance Account Director

Tony Dean

Tony Dean

Performance Account Director

Despite the growing influence of DCTs, there has been relatively little regulatory intervention in terms of how they operate

Whether giddily searching for a last minute holiday or, perhaps more functionally, looking to save on car insurance, you’ve probably used a digital comparison tool (DCT) such as a price comparison site before; 85% of internet users have. If not, you’ll no doubt be familiar with the brands behind those lovable(ish) Russian meerkats or booty shaking builders.

Over the past 15 years, DCTs have changed the way consumers research and purchase products across a variety of sectors including insurance, travel, telco, energy and banking. By aggregating products from multiple providers into one view, DCTs have created a service of convenience, empowering consumers with a wealth of product information at their fingertips. Established brands are explicitly stacked against each other in this ‘shop window’ alongside challenger brands enabled by lower barriers to entry. This environment conduces ultimate competition, leading to lower priced products that can more easily be found by consumers. All is rosy right? Well……kind of.

What has happened?

In September 2016, the Competition & Markets Authority (CMA) announced the ‘Market Study of Digital Comparison Tools’ (DCTs) with a scope to look at how to “maximise the potential benefits” and also “consider the concerns sometimes expressed about DCTs”.

Six months later, the CMA have released an interim report which, if a school report, would read  ‘B+ – good but room for improvement’.  A generally positive tone is held, citing how DCTs encourage consumers to shop around where they might not have otherwise and driving competition between providers. Four key areas were however identified as steps that could be taken to maximise DCTs benefits:

  1. Maximise consumer confidence and build trust – do consumers understand how to effectively use DCTs and trust that they aren’t being mislead
  2. Improve DCTs’ access to better serve consumers – do DCTs have sufficient access to product/consumer data to accurately reflect product detail and the best products for consumers
  3. Make competition more effective – do any agreements exist between DCTs and providers/other DCTs that compromise competition
  4. Improve regulation – what practical regulations can be implemented to maximise DCTs effectiveness whilst not inhibiting industry innovation

Why was the study called?

Despite the growing influence of DCTs, there has been relatively little regulatory intervention in terms of how they operate. Investigations conducted thus far have been fragmented in terms of scope, sector and regulatory body. Subsequent directives have been minimal and of those made, many have been vague or soft touch.  Voluntary sector specific accreditation schemes allowing DCTs to add a badge of honour for meeting a prerequisite code of conduct have seen minimal uptake.

This has resulted in DCTs, in the large, carrying on with business as usual to position their service as they see fit. Those raising concerns therefore feel their concerns are yet to be satisfactorily addressed. This has naturally brought about a degree of frustration, exacerbated by events such as the CMA last year overruling OFGEM’s whole of market recommendation which proposed all DCTs should display all energy tariffs, not just tariffs from providers where a commercials relationship is held.

The CMA has since faced a degree of criticism with some questioning the CMA’s comprehension of the digital market. Perhaps this, rather unexpected study, was called in an attempt to alleviate such concerns one and for all.

Why are we yet to see clear, defined and agreed DCT regulation?

  • Sector disparities – Whilst commonalties do exist across DCTs, every sector and product type is different and therefore requires varying formats of DCT services to most benefit consumers. The CMA have flitted between each approach having previously looked at the energy, banking and insurance sectors and now deciding to roll into an all compassing cross sector study.
  • Technological advancements – DCTs have innovated and evolved too quickly for regulatory bodies. For example, over the past eighteen months credit card comparison services have shifted from static tables, ranked by a particular product feature being the norm, to eligibility, ranked by likelihood of acceptance. Travel aggregators and insurances pricing and availability algorithms have become increasingly sophisticated. With market studies taking at least a year from announcement to information collation, analysis and final report recommendations – they are often outdated before being released.
  • Project ownership and broad stakeholder interests – The CMA is in a difficult position. On one side, sector specific private or public regularity bodies such as OFGEM or the FCA are championing consumer rights above all. Such bodies are both inputting into CMA studies and producing their own independent studies and recommendations causing some grey areas through conflicting interpretations. On the other side, price comparison sites can evidence the savings they have provided for millions of consumers. They have however only been able to flourish to this point with a commercial interest also at heart.

What needs to happen?

In order to fully maximise consumer benefits whilst not inhibiting DCT innovation, ongoing collaborative projects need to be established at sector level. Ad hoc studies bouncing between sectors every three or four years won’t work. Neither will a one size fits all cross vertical study. Whilst the latest study is attempting to identify cross sector applications, it does seem that deep dive studies and recommendations made at a sector level are the only way to comprehensively cover the nuances within each sector. This framework will require ongoing resource to be committed across from all stakeholders but whether this can be facilitated is to be seen. As the wider digital landscape evolves and mediums through which consumers interact with media shift, DCTs will undoubtedly evolve with them. Guidelines and regulations therefore laid out in one year will be irrelevant or inconsequential in another hence the need for always on consultations.

Furthermore, UK regulatory bodies need look beyond our shores and consider how directives and regulations coming from Brussels may affect the way in which DCTs operate. Payment Services Directive (PSD2) and General data Protection Regulation (GDPR) are two EU led regulations set to land in 2018.  Both will impact the DCT market across a number of key areas the CMA are looking at such as provider data availability, consumer data use and transparency.

Finally, coming back to the crux of the issue – qualitative and quantitative ways of assessing the benefit to consumer of any imposed regulations need to be established. For example, what benchmarks can be used to demonstrate to what extent adding a market coverage note to a comparison table has on raising awareness that the DCT doesn’t show whole of market. Or by removing certain contractual clauses, how can reduced pricing through increased competition be evidenced.

Looking forward

DCTs are here to stay, that is unanimously accepted. As is the notion that consumers would be worse off in a world without DCTs. They have to date enjoyed operating in a relatively laissez-faire free-market which has allowed rapid innovation however there has been too much bad press for public bodies to walk away now.

In the interim report, a CMA survey found that only 11% of recent users believed DCTs covered all providers. In addition, Nine out of ten consumers said they were satisfied with the service received from their DCT experience. Perhaps consumers aren’t as naïve or lacking confidence using DCTs to the extent previously thought. Due to be released in September 2017, outcomes from the final report will likely be implications around transparency in term of requirements for more visible declarations of whole of market coverage status, how sites make money or use consumer data. Whilst there has been mention of legal enforcement action to ensure DCTs hold a “Clean Bill of Health”, this would be surprising and the rule book won’t be ripped up.

A more rigorous framework for how DCT regulatory studies and recommendations are formulised is imperative in order to provide any notable benefit to consumers. Technology and consumer behaviour doesn’t stand still therefore regulatory bodies need to be as agile as the very sectors they are investigating.

Businesses can differentiate on price or product. With DCTs not being able to compete on the former, it is essential that they are allowed to innovate and create service based USPs to offer the best possible experience to consumers. The role of regulatory bodies should be to ensure this is being executed in a transparent manner as a consultative, strategic partner.