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Product innovation must focus on consumer interests, or die

Providers of retail finance products must ‘innovate or die’ if they are to meet the needs of a new generation of ‘short-termist’ investors, a hard-hitting report has found.

By Julia Bradshaw | Published May 16, 2012 | comments

The warning comes as the sector faces the RDR, Solvency II and a radical overhaul of regulation.

Innovation alone and tweaking products around the edges will not be enough to get people to buy them, the 30-page Innovation or Rebirth report from Weber Shandwick’s policy division has said.

Instead, products such as life insurance, pensions, credit cards and mortgages must be replaced by ones focused entirely on consumers who are growing increasingly short-termist in the way they think.

Speaking as the report was unveiled during an industry debate hosted by the firm, Liz Wolstenholme, consumer planning director for Weber Shandwick, said: “The economic picture is gloomy, and some people are even moonlighting to make extra money, but they don’t know what to do with that money.

“However, the report shows there is little appetite for new financial advice or new offerings. People are burying their heads in sand and this will only increase after the retail distribution review.”

The report showed 29 per cent of people believe they will not need more financial products, services and advice than they have now, yet many respondents said products were “too complicated to understand and get to grips with” and they would rather spend the little leisure time they have doing something fun.

A further 68 per cent said buying shares is too risky, more than 70 per cent said mortgages were unaffordable and home ownership impossible, and 79 per cent said savings accounts offered paltry rates of return that eroded savings.

Ms Wolstenholme added: “The old financial model we have is broken and doesn’t work for 21st century consumers. There is a need for a rebirth. The new generation of 18 to 32-year-olds are thinking in terms of renting rather than buying.

“They don’t get jobs for life, don’t expect to have a car, they use Zipcar instead. Their brains have been re-wired by internet to think ‘shallow’ and ‘short term’. They don’t want to own, but are happy to live their lives fluidly.”

According to the report’s findings, almost as many 45 to 54-year-olds are equally short-term in the way they view products such as pensions, mortgages and life insurance.

The report suggested the industry must “start from scratch with a completely new suite of products that will meet the needs of the short-termists”.

It suggested specific products relevant to various stages of life, such as new mum loans and credit card partnerships with renting schemes such as Zipcar and Spotify.

The report said: “Do we offer points for people who clear their bills each month? Could we offer bundled products for the rental market in the same way we do for home-buyers? There is a whole new model out there we need to be thinking about.”

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