Heidi: Ki ora and welcome to the first podcast in our occasional conversation series. My name's Heidi Norman and I'm the external communications manager at the Financial Markets Authority. Today I'm joined by Stuart Johnson, our Chief economist, and Sophia Scragg, our senior advisor. Welcome. Can you share what you like most about your jobs?
Sophia: Hiya. Heidi. My favourite thing about my job at all of the different and interesting financial topics that we get to research and learn about.
Stuart: Thanks, Heidi. The thing I like most about my job is the very varied group of people that I talk to. I really like talking to providers about the products and the services that they're offering and the different things that they're doing in the market.
Heidi: Wonderful. Well, today we're here to talk about understanding fairness in financial services, which is the first major piece of research that the Fmax's new Economics Department has published. Now, I will point out at this time that this research is not regulatory guidance. It is designed to support members of the financial services industry to facilitate fairer financial markets. Stuart, why did we choose fairness as a subject of our first major research?
Stuart: It's a great question, Heidi. The FMA's focus is to facilitate and promote fair, efficient and transparent markets. But fairness is quite a difficult concept. Lots of people think that fairness is individualistic or put differently, fairness means something different for different people. We wanted to test the hypothesis that at the level of an individual scenario, New Zealand would have quite a consistent opinion on what constituted fair treatment from their bank or their insurance company or KiwiSaver.
The other thing Heidi, is that there isn't much research around either in New Zealand or internationally in fairness and a big part of the FMA's role is to increase everybody's understanding of the market. And so we wanted to undertake this research to help everybody have a better understanding of what constitutes fair treatment.
Heidi: And why did we ask customers about fairness?
Stuart: We asked customers because we wanted to undertake a survey so that we could get a wide-ranging group of New Zealand consumers. But as an economist, I absolutely understand that a market needs consumers and providers, and that's why we've invited providers in the research to come and talk to us about their own perceptions of what constitutes fair behaviour. We're also really interested to hear from providers on what they think of the research and whether the research is helpful in their own understanding of fairness.
Heidi: So when it comes to fairness in financial services, what do Kiwis expect?
Stuart: Our research has identified that 72% of New Zealanders expect fair treatment from their financial services provider. That's a really important finding. Nearly 3/4 of people expect to be treated fairly by their financial services provider. We also asked consumers their actual perceptions of fairness and consumers told us that they receive fair treatment from their financial services provider. About 69% of the time for Kiwi saver providers, about 63% of the time for banks, and about 57%. For insurance companies, so we can see that those numbers are quite high, but they're not all the way to the 72% that New Zealanders expect.
Heidi: Sophia, can you share something that surprised you about the research?
Sophia: So fairness is really important to New Zealanders. 81% of the New Zealanders who answered the survey believe that it's important that everyone gets the same opportunities in life and 81 percent or so believe it's important. That New Zealanders should be rewarded or should get the benefits that match how well they have worked.
Heidi: That is interesting. Researching fairness in financial services specifically. It sounds quite tricky. How did you conduct the research?
Sophia: So the approach we took was to write different third person scenarios about various experiences and financial services for consumers to rate on a scale. By using specific scenarios, we were able to make the research more robust and we were able to ask about many different conduct issues in different types of financial firms and industries. So I'll give you an example of the first scenario that we asked. We asked about George George's Bank had charged him fees that they shouldn't have. They realised that they made a mistake, but then they took over a year to repay George. Now, Heidi, if you were to rate George's scenario on a scale of zero to 10, where zero is most unfair and 10 is most fair, what rating would you give?
Heidi: I'd have to say a 2, because that seems an awful long time when you've realised you've made a mistake.
Sophia: It does. And Stuart, what about you?
Stuart: I'd also say a 2, I think that that's the kind of thing that the bank should be able to fix.
Sophia: I agree. Then I'd also like to share Alice's scenario with you both. So Alice wants to buy a new washing machine. However, unfortunately she has a poor history of repaying her debts, so the company who she applies to get a loan from actually declines her application. Now, Heidi, how would you rate Alice's situation again from zero to 10?
Heidi: I'd put that at about a nine, because that's what you'd expect from a loan provider.
Sophia: And Stuart?
Stuart: I'd also say a nine. I think people need to understand that when consumers don't pay their debts, there's not much likelihood that firms are going to lend them more money.
Sophia: So the New Zealanders who took part in this survey actually agreed with both of you, 86 per cent of New Zealanders found Georgio's situation unfair. But equally, 86 per cent also found Ellis's situation fear. Now, the people who answered the survey didn't know this when they were completing it, but when we wrote George's situation, we wrote it to be unfair and when we wrote Alice's situation, we wrote hers to be fair so that we could compare them. Overall, we had 29 different scenarios that were unfair and four that were fair like Alice's.
Stuart: So the most important finding from this research is that when we look at Alice or George and we look at what consumers or how consumers have rated fairness, we see very consistent findings. This gives us really strong evidence that when we look at the level of a scenario New Zealanders have. A very consistent understanding of what constitutes fair treatment from their financial services provider. Now it's important to note that not all of the scenarios had a finding quite as strong, but in situations where perhaps 50 per cent of people are raiding a situation as unfair, that's still a very strong finding that there's a high level of consistency between New Zealanders on what constitutes fair treatment. I'm really hopeful that this finding will be useful for providers as they're thinking about the treatment that they deliver to their own customers. I also think it will be really helpful for consumer groups as they think about how they understand fairness when they're looking at experiences that consumers have had. I think it's really important to focus on the idea that something that is perhaps disappointing or something that isn't what the customer wanted, say in the example that Sophia shared the example of Alice and her washing machine, that probably isn't a great outcome for Alice, and yet 86% of people believe that that is fair treatment because they understand that Alice hasn't repaid her debts in the past.
Heidi: Well, thank you very much, Stuart and Sophia, anyone who is interested in learning more about the research can download the report from our website. I will remind you again that this research is not guidance for financial service providers. This research was designed to start a discussion about fairness, and we welcome any members of the public or financial services to share their reflections with us. We hope you'll join us for future episodes of our occasional conversation series. Thank you very much for listening. Goodbye.
