Product innovation and consumer choice in the UK financial services industry

Within the UK, low levels of saving has been a continuing policy concern for both government and financial regulators. Why individuals save less than might be expected has been increasingly associated with an inability of ma… financial services consumers to comprehend product quality and to underta… of firms in this debated through examining the product choices presented to consumers by financial services providers.

We examine two aspects of poor consumer decision making, yet to be fully explored in the wider regulatory literature. Initially, we review how financial services providers consider product innovations and the marketing strategies they pursue in constructing their offerings to consumers. Secondly, we ass… a popular financial product, the interest bearing deposit account, to examine what savings product choices are actually presented to consumers. These areas are explored through semi‐structured interviews undertaken with semi financial services managers and through a review of the entire product offerings to the interest bearing deposit market.

We report that savings markets are characterised by high product turnover and short duration. Consumers in the UK, alike many developed nations, and often unfamiliar with, and lack confidence when, buying savings products. Example consumers often have difficulties when making product comparis… Faced by so much proliferation of undifferentiated products, consumers find difficult to make a straightforward comparison between products.

It is concluded that further public education, a greater understanding of ho… firms present product choices to consumers and how consumers perceive s… choices are areas demanding further research and consideration.

Consideration of how firms make decisions with regard to product innovation and savings problem more generally is an area demanding further investigation from a range of disciplinary approaches. Finally, given the perceived high importance of financial services to individuals and the nation… economy at large, some scrutiny should be placed on the issue of the high profitability of the financial services industry and how this is reflected into product innovations and, therefore, differentiated quality choices presented various categories of consumers.