The UK Regulators Network has published a new report on price comparison websites which it says can reduce barriers to entry and growth for providers, stimulate stronger competition and innovation between firms, and encourage new entrants, resulting in further benefits for consumers.

Introducing the report, UKRN said that price comparison websites have developed steadily and organically over the past ten years or so and have become popular in many countries and industries, in particular for insurance, energy, telecoms and credit cards. 

The report says the websites not only allow users to cross-check prices and services from different providers in a matter of clicks, they also help consumers feel more empowered and informed by allowing them to:

• access information about the various offers available in the market;
• assess these offers in a well-reasoned way; and
• act on this information and analysis by purchasing goods or services that provide best value to them.

It also says that PCWs offer benefits to consumers when they navigate potentially complex purchases, and reduce the search time comparing similar products in one place. According to the report, there are also advantages for the product or service providers because they bring together shoppers and firms more easily and, in some cases, more cheaply than other acquisition channels.

The report says:

“This can reduce the barriers to entry and growth that providers might otherwise face, it can stimulate stronger competition and innovation between firms, and encourage new entrants, resulting in further benefits for consumers.”

Concerns in a number of sectors that PCWs may sometimes restrict or distort consumers’ abilities in accessing, assessing and acting on information

However, the report also warns that despite clear advantages,there are concerns in a number of sectors that PCWs may sometimes restrict or distort consumers’ abilities in accessing, assessing and acting on information, such that the potential benefits are either not fully achieved or new risks arise. Key concerns raised include:

• Rankings may be complex
• Rankings may not be suitable for all customers - PCWs’ rankings are sometimes ordered by ‘popularity’ which may not be helpful for consumers and could lead to an unfavourable outcome if previous users have made poor choices or if it is not the most relevant factor for them
• PCWs may give prominence to suppliers they have a commercial relationship with -some PCWs give prominence to certain products because of a sponsorship agreement, instead of displaying options that might be better for consumers based on their search criteria
• Not all products are presented to consumers because of a lack of a commercial relationship - whilst regulators have encountered examples where commercial relationships have given prominence to some results over others, the opposite can also be true. Where a PCW does not have a direct relationship with the supplier, the search results from that supplier can be ‘hidden’ or difficult to find.
• The method of ranking may affect which deals consumers use

The report offers a view on four key issues:

• how consumers engage with the market of PCWs;
• what benefits there are for customers and for competition;
• what potential risks could undermine the effectiveness of the comparison sites; and
• what regulatory powers can be applied to address these potential risks now as well as the future challenges that will come from innovations in the market.

Focusing on case studies from the three regulators that led the work – the Financial Conduct Authority, Ofgem and Ofcom – the report draws upon a large amount of existing research and data, including market studies, consumer surveys and behavioural economics theory.

Commenting on the new report, the UKRN said:

“We were keen that our review of PCWs had some practical applications. We think the report will be a useful benchmark for other regulators looking for an overview of PCWs and examples of current approaches to regulation. We hope it will also be a valuable reference tool for consumer groups, particularly where it draws attention to potential inconsistencies of service levels between firms.”

“Finally, the report has highlighted a number of emerging themes. We were keen to make the most of these opportunities for further study and, as the Competition and Markets Authority (CMA) started planning its investigation of digital comparison tools, we saw this as a unique opportunity to share our insights, which we have now done in an open letter to the CMA.”

UKRN said the report has also created a number of springboards around topics that have emerged from the work, but that are out of scope of the current project - key areas include:

• analysing the risks and benefits of setting up cross-sector principles for PCWs
• how the benefits of PCWs can be enhanced e.g. by considering the availability, storage and accessibility of personal data
• whether an increasing use of PCWs brings an excessive focus on price to the detriment of quality.

According to UKRN, regulators can seek to help consumers access and assess relevant information gathered by digital comparison tools, citing Ofcom’s changes to its Accreditation Scheme in 2013 to require accredited comparison sites to display “up to” speed and data usage limits on the results pages of broadband services searches.

PCW use in SME business market could facilitate growth of dynamic intermediary sector

Commenting on the use of PCWs in the SME market which has lagged behind the consumer sector in popularity, the report concludes that it may help SMEs to compare the likely cost of and their eligibility for products.  It could also facilitate the growth of a dynamic intermediary sector with the ability and incentive to help customers obtain better terms from their current providers or switch to new products or providers which offer better value.

The report says that in addition to offering a single purchase, there are potential developments of intermediaries taking on an on-going relationship with the consumer, monitoring the market and either notifying the customer of better deals when they occur, or (with pre-arranged consent), actively switching them.

Some PCWs in the energy market have already been active in offering collective switching arrangements, where customers are grouped together to increase the volume available to a supplier and hence negotiate a better price. The report says that the model is fairly popular in energy as it tends to work better where there is a degree of homogeneity in the products.

In some cases, the increased use of PCWs and the focus on price intensifies the risk that products are “hollowed out” to the detriment of other factors, such as quality. We consider that the risk of hollowing-out can have a significant impact on competition where it occurs, and the effects of this may undermine other benefits of PCWs.

PCWs now play a significant role in several regulated sectors - future developments will change PCW landscape significantly

The report concludes that PCWs now play a significant role in several regulated sectors and that a number of anticipated developments are likely to expand both the scope (in terms of products offered) and reach (in terms of market diffusion) for PCWs. The sector is fast moving and UKRN is expecting future developments to change the PCW landscape significantly.

UKRN said a number of large-scale projects are also underway which should give consumers greater access to and control of data relating to their consumption of services. Key initiatives include midata (covering financial products, insurance and energy) and smart energy metering.

The report says that when considering taking regulatory steps that affect the role of PCWs, regulators should reflect on the impact of future market improvements and seek to ensure that any steps taken facilitate innovation to support consumers’ interests.

Click here to read the report in full