Attention, Search and Switching: Evidence on Mandated Disclosure from the Savings Market

52 Pages Posted: 9 Mar 2017

See all articles by Paul Adams

Paul Adams

Financial Conduct Authority

Stefan Hunt

Financial Conduct Authority

Christopher Palmer

MIT Sloan; National Bureau of Economic Research (NBER)

Redis Zaliauskas

Lloyds Banking Group

Date Written: July 20, 2016

Abstract

To inform possible future policy in the UK savings market, we test new consumer disclosure. Easy access savings accounts are the most popular and simplest way to save in the UK, with the main product feature being the interest rate. While significant rate differences exist on similar accounts both within and across providers, the majority of consumers rarely switch and so miss out on interest earnings.

The new disclosure proposals were designed to help consumers identify better products and stimulate competition between firms. We test their effectiveness using field trials involving five regulated firms and 130,000 consumers. Consumers in the trials were either about to experience a decrease in their interest rate, or were on a rate lower than available on currently offered products. We test three interventions: information about comparable higher-rate-paying products, a pre-filled return form that enabled simplified switching and a reminder about the rate decrease.

We find that front-page information about higher available rates led to an increase in switching from a baseline of 3% to 6% of consumers, while non-front-page disclosures had no effect. On a different sample of consumers, a pre-filled return form increased switching from a similar baseline of 3% to 12%. Reminders, especially those sent close to a rate decrease date, prompted an 8-9 percentage point increase in switching − comparable to the effects of the return form, albeit from a higher baseline level. All interventions increased switching within providers, but not to higher-paying products available from other firms. Despite switching within providers in the trials taking 15 minutes on average, according to a survey, and switching gains being non-trivial - £127 in the first year on average - we find that attention to disclosure is limited. This may explain the modest impact of most of the changes to disclosure trialled.

Suggested Citation

Adams, Paul and Hunt, Stefan and Palmer, Christopher and Zaliauskas, Redis, Attention, Search and Switching: Evidence on Mandated Disclosure from the Savings Market (July 20, 2016). FCA Occasional Paper No. 19. Available at SSRN: https://ssrn.com/abstract=2841282

Paul Adams (Contact Author)

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Stefan Hunt

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Christopher Palmer

MIT Sloan ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Redis Zaliauskas

Lloyds Banking Group ( email )

10 Gresham Street
London, EC2V 7AE
United Kingdom

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