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Price comparison websites have become the essential middlemen helping UK consumers save both time and money, virtually guaranteeing that all of us save every time we visit, whether we’re looking to switch energy providers, are searching for a new insurance policy or on the hunt for a new credit card.
The emergence of price comparison sites was revolutionary and thrusted retail financial services into the digital age but the industry has been heavily criticised for fuelling an ineffective model that only promises customers savings if they keep coming back to earn them commission, and for creating a marketplace that penalises those customers that remain loyal to their suppliers.
With the industry facing several challenges, both big and small, we examine whether price comparison websites are still fit for purpose.
What are price comparison websites?
Price comparison websites aggregate the policies and prices on offer from different suppliers of various financial services. Predominantly, customers use these sites to find deals on gas and electricity, insurance and credit cards but also a swathe of other products. This allows customers to view a wide range of deals in one place, helping them to quickly find cheaper deals. The biggest price comparison websites in the UK include Moneysupermarket.com Group, GoCompare, Comparethemarket, Confused (owned by Admiral Group), and uSwitch (owned by ZPG Group).
These price comparison websites have grown in prevalence since surfacing two decades ago. The UK Competition and Markets Authority (CMA) estimates 85% of all UK internet users have used a price comparison website at some point and, supported by calls from regulators and the government, they have become an essential tool for anyone looking for a new policy or to switch from their current provider.
Price comparison websites only reward customers if they keep coming back
And why wouldn’t they? Each time a customer uses a price comparison site it is almost certain they will be able to yield a saving on their home insurance or find a credit card with a better rate, and the government has promoted them as part of efforts to save consumers money, particularly in the energy sector.
In fact, these sites have won us over so much that they are often described as ‘unbiased’ by consumers and considered by some to be run ‘for the benefit of consumers’, according to the CMA’s investigation report on price comparison websites released last year. At face value, it’s an understandable perception from the public. They have the support of the government, are free to use, save consumers money, and invite fiercer competition from providers. But, at the bottom line, price comparison websites have the same goals as any other company: make profit and create shareholder value. GoCompare and Moneysupermarket saved UK consumers over £3.2 billion on their own last year, but they also made combined pre-tax profits of £127 million and returned £100 million to shareholders.
Price comparison websites provide their services to the public free of charge and instead make their money by charging commission on the leads generated for providers. The gas supplier, home insurance policy provider or credit card company pays the price comparison site for each customer they acquire through their site. You can argue price comparison websites benefit both consumers and providers, but you cannot describe them as unbiased or operating without motive.
Before we were able to access so much choice the name of the game was loyalty (or at least we thought it was). Banks, energy suppliers and insurers rest assured that customers would largely stay put once they had been acquired. Now, customer churn is rife as they flock to find better deals. It is fair to argue that unsticking customers from long-term providers is a positive, giving big banks and utility firms a long-awaited kick to make them work for their customers and compete more vigorously on price. But there is one snag: customers only yield the true benefits of price comparison sites if they revisit them each year.
Price comparison websites create flywheel of engagement
The intense focus on price has led to a race-to-the-bottom among providers. Cash is king, and customers are often enticed by a deal based on its price before they even manage to find out who the provider is or whether it’s the policy they need. It is thought many providers now acquire certain customers through price comparison websites at a loss because they have to offer rock-bottom prices to attract eyes away from rival deals and cough up the cash to the website for generating the lead. But this model has had severe consequences for the market and consumers.
Put simply, providers lure in customers from comparison sites with cheap deals which then rise to considerably more expensive tariffs or policies after a year or two. For all the times that the television, whether it be a moustached opera singer, a meerkat or a man in hot pants, tells us we need to switch our energy supplier or find a better mortgage rate, those that are actually providing us with the services want the complete opposite.
Read more on the effect of GDPR and how big tech is responding
Price comparison sites have created what could be called a flywheel of engagement – customers have to keep switching if they are to avoid their bills creeping higher, and every time they do the price comparison sites take their slice of commission. It is widely agreed price comparison sites save us money, but you could argue this is because customers find themselves on such expensive deals further down the line because they also encourage providers to raise prices in the future.
Price comparison websites: skewed results
‘Transparency is a mantra in the modern world of finance. But the demand for transparency in intermediation is a sign that intermediation is working badly, not a means of making it work well,’ – John Kay, author of ‘Other People’s Money, masters of the universe of servants of the people?’
Price comparison websites have won our trust by providing us with a service that saves us money from sectors that the public have no problem believing are ripping them off. Bankers and insurers haven’t held an exemplary reputation among regular communities for decades and people are showing their disdain with the biggest energy suppliers as they continue to leave in their tens-of-thousands to small, independent suppliers.
The idea that we aren’t rewarded for loyalty and that we are constantly being overcharged for unfulfilling but essential services fuels the belief that price comparison sites are the consumer’s friend. But these middlemen are not striving to save us as much money as possible, but find the balance by selling us products that do save us money as well as make them profit. We save money using price comparison sites, but the question is could we be saving considerably more?
In addition, the ruthless competition on pricing has raised concerns that people are buying products or services based on the cost even if it is unsuitable or not what they need. The Financial Conduct Authority (FCA) said in 2016 that a ‘key concern’ was the ‘expectation gap’, where ‘people believe they are getting a good deal because they are saving money initially, only to find they are not covered as comprehensively as they thought when they make a claim’.
Further woes spawn from the anti-competitive nature of ‘most-favoured nation clauses’ that price comparison sites use when striking contracts with providers to prevent them from selling the same products or services at a cheaper price on a rival price comparison site. There have also been concerns about how providers that do not have a relationship with the price comparison website (as in, it doesn’t earn commission or payment) are displayed online and presented to customers, with sites prioritising and promoting commission-earning or sponsored deals. This also applies to those companies like Admiral that sell their own insurance through their own price comparison websites.
The CMA ‘recommended’ measures last year to make it clearer about how the results on price comparison sites are skewed and why. This is supposed to be done under its ‘CARE’ system to ensure price comparison sites are being Clear, Accurate, Responsible and Easy to use. Still, looking at most of the sites it is still very unclear about how or why you are being offered those deals specifically apart from the likes of tags that mark sponsored promotions (which are not new).
Some providers shun price comparison websites
Those firms that refuse to pay price comparison websites for their services make a point about it, with adverts often highlighting that their deals are only available directly through them. Direct Line is a prime example, having previously told consumers to ‘cut out the middle man’ and go straight to them to get an even better deal.
This strategy, however, comes at a cost. One of the main benefits for providers that use price comparison websites (and an upside to relentless focus on price) is there is less of a need for them to spend on advertising. Instead, they rely on the price comparison website’s barrage of advertising to attract them to the site, where they can offer their product or service. But companies like Direct Line have to manage their own marketing efforts.
This presents an interesting debate. The CMA declared that the scale and motivation of price comparison websites to advertise meant they were ‘a relatively low-cost sales channel’ for suppliers to secure new customers, which ‘can feed into better offers to consumers if lower costs are passed on by suppliers.’ Still, despite the CMA’s stance that ‘many’ providers can secure customers at a cheaper rate than without them, it’s fair to suggest any savings made in the marketing department are not being passed on to consumers but to the price comparison sites in the form of commission or sponsorship. It is equally fair to assume the millions spent by price comparison sites and providers (which still need to retain the reputation of their brands), plus the cost of the middleman, is also passed on to consumers.
How much time and money do price comparison websites save consumers?
With fair questions arising about the real savings, some will argue that price comparison websites help us save an even more valuable asset: time. However, consumers are having to put in more time and effort than ever before if they really want to get the best deal. Considering the use of most-favoured nation clauses and the fact some of the biggest players abstain from listing their offers on any price comparison sites means consumers cannot use just one site to get a clear picture of all the deals on offer. Quite simply, not every mortgage, travel insurance policy or energy bundle is available on every price comparison site, or even at all.
The CMA’s advice to consumers is evidence that the model adopted by price comparison sites is losing its ability to save us time, stating that people should use several sites to make sure they see all the products and services available.
Which?: price comparison websites are inconsistent and offer lack of choice
This apprehension has been echoed recently by a report from consumer group Which? that revealed a ‘picture of inconsistencies and a lack of real choice that could be leaving consumers at risk of purchasing policies that simply don’t meet their needs.’ Having analysed 21 insurance brands offered on GoCompare, Comparethemarket, Confused and Moneysupermarket, it found six in ten of the policies sold did not match the actual policy that was purchased. This included false promises of courtesy car provision and ‘unreliable’ levels of cover with some policies only providing half of the actual cover limit that was sold.
The report also highlighted how the relationships between price comparison sites and providers can impact consumers, finding that many of the top results presented were sold by only a handful of brands – with the top 30 deals offered by as few as 12 suppliers in one case. It also pointed to the minimal differences in price between similar levels of cover offered by various brands owned by just one parent firm, with Admiral being shoved under the spotlight because there was ‘little to choose’ between the offers available by its brands. The same policies offered by different brokers also caused a similar problem.
The ultimate message from Which? is on the ‘expectation gap’ which the FCA has previously worried about, urging consumers ‘not to rely entirely on the policy details published on price comparison websites.’
Comparing the price comparison sites: how have they performed?
All of the major UK price comparison sites have delivered lifts in revenue and profit over the past two years. Below is a breakdown of the performance by the owners of the biggest UK comparison sites.
Moneysupermarket vs GoCompare: financial results
Moneysupermarket boasted better gross profitability than the other purest play listed in London, GoCompare. Although Moneysupermarket is over twice the size of GoComparre in terms of revenue, the latter delivered higher rates of growth in the first half of 2018 in terms of revenue, profit and its interim dividend.