Websites that help consumers compare prices on consumer goods were created some years ago and are now commonplace. But websites that compare financial services products are more recent and less common, certainly within the UK. They are gaining increasing popularity and sophistication, harnessing various externalities, and claim to save the consumer considerable amounts of money. In the process, such websites are striving to alter the value chain for consumer financial services products. In doing so, they are creating market valuations - one firm, uSwitch, sold in 2006 for £210 million ($366 million). One large insurance company, Direct Line, is biting back against the emerging power of such price comparison websites ...
Moneysupermarket.com was launched in 1999 with the objective of helping consumers compare the interest rates offered on bank accounts. Perhaps the business model was based on advertising clicks, like many sites of its era. But over recent years its business model has developed and its services have continually expanded, such that they are now remarkably diverse.
- Money loans, credit cards, mortgages, bank accounts, debt solutions,
business finance, share dealing, pensions & travel money
- Insurance car, home, life, travel, pet, bike, van, landlord, medical, breakdown, dental,
business, mortgage
- Travel flights, hotels, holidays, car hire, airport parking, excursions
- Motoring financing, insurance, breakdown cover, leasing
- Other gas & electricity, mobile phone contracts, broadband providers
It's a lot of services. Does moneysupermarket.com have a clear strategy? Yes, I believe so.
- What services? Price comparison for services (not products)
- How deliver? Web delivery, affiliate marketing revenues (not charge customer)
- Who consumer? Mass market consumers (currently only UK as FSA regulated)
But...I note that 'shopping' area comparing consumer electronic products has recently appeared. Perhaps this is a new opportunity for moneysupermarket.com, but this functionality is commonplace and - in my view - likely a distraction from a growth strategy based on a geographic rollout.
What has driven the success of the moneysupermarket.com value proposition? Powerful externalities; an opportunistic, bold business model plus excellent execution. MoneySupermarket does have a few competitors, predominantly uSwitch.com, and some niche comparison websites (e.g. confused.com).
Price comparison is not a new topic. Such advice, even on financial services items, has been available through the UK Consumer Association's Which? magazine for years (but periodic coverage, largely print delivery and only to its subscribed members). And there are numerous websites that offer price comparison for consumer goods. But price comparison for financial services is a recent innovation.
Will consumers benefit from this innovation? Maybe. In the short term, better information and higher transparency will undoubtedly help consumers select lower cost financial services providers. In the medium to long term, such tools will likely encourage consumers to change providers more frequently (i.e. higher churn) and the related costs and customer acquisition commissions will inevitably impact pricing. One major insurance firm, Direct Line, appears to agree with this logic and is rebelling against MoneySupermarket and its ilk. The current Direct Line TV advertising specifically promotes that it does not use price comparison websites as such websites are simply 'middlemen'. Indeed they are, and expensive ones too. But regardless of whether the net impact of MoneySupermarket is positive, it will undoubtedly generate wealth for its founders and investors. Rightfully so.
Click graphic to download one-page PDF on MoneySupermarket value proposition.
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