Microsoft is among a clutch of high profile technology firms that have joined forces with over 50 leading City institutions to develop an app-driven ‘digital passport’ to make saving easier for consumers.
The potentially revolutionary scheme is one of several ideas to have emerged from the work of the Savings and Investments Policy (TSIP) Project, an initiative launched just over a year ago under the auspices of TISA, which represents firms involved in the supply and distribution of savings and investment products and services.
Over 40 City institutions are onboard the TSIP project. They include Aviva, BNY Mellon, Barclays, BlackRock, Nationwide, Openwork and Zurich. Several consumer bodies are also involved. Their ultimate aim is to work with government and regulators “to help encourage Britons to plan for longer lives and retirement, make saving easier and change our culture from one of debt to one of saving”.
Tony Stenning, head of UK retail at BlackRock and the chair of the TSIP project’s executive committee, says the digital passport is part of a jigsaw of proposals being developed by TSIP to help “make savings as easy for consumers as it is for them to get into debt”. He adds: “It’s something we have talked to government about several times… at the moment you can pop into a store, apply for credit and, provided you have your identification and place of residence details and a reasonable credit score, you can walk out with thousands of pounds’ worth of credit. All in a matter of minutes. But try contacting a financial services company you are not a customer of and ask to open an account – say an Isa… the ream of paperwork you have to go through is extraordinary, and for Mr and Mrs Miggins is often a bridge too far.”
David Dalton-Brown, executive director of TISA, adds: “It is ironic that you can take out a loan with a few taps of an app on a smartphone but have to jump through so many hoops to open a savings account. It is no wonder we are a nation hooked on debt. Our idea of a digital passport is designed to make opening a new savings account or switching to a new provider as simple as swiping your credit card at a coffee shop to pay for a coffee.”
“We need to make saving easier, change our culture from one of debt to one of saving”
TISA believes a digital passport, through which all of a consumer’s financial information, personal data like place of residence, national insurance, mortgage and banking details can be accessed, would help cut out all the red tape. “The passport would in effect provide you with access to a simple repository, a vault of all the information needed for you to conduct all of your financial affairs including paying bills, transferring funds and so on. It would be totally under the holder’s control. At a stroke it kills the need to perpetuate the same information across multiple demanders,” says Dalton-Brown.
Microsoft – a member of the TSIP advisory board – is among several Silicon Valley technology firms keen to help design and implement the technical architecture for the digital passport. Dalton-Brown says details of all the others will be revealed soon, adding: “the technology to support a financial services digital passport is already available. Our initial aim is to develop a prototype of the digital passport this year, which will allow us to pilot test the concept with consumers, regulators and providers.”
He assures security issues are very much to the fore as TSIP’s digital passport working group takes the initiative forward: “Security and privacy are of utmost importance. We aim to make the passport as least as secure as other online financial applications that are already used by millions of UK customers. Ideally we would like the passport to be supported through apps on mobile devices and personal computers.”
The digital passport could help restore £77bn in forgotten accounts
While TSIP is convinced digital passports can help ensure consumers enjoy a hassle-free experience in managing their financial affairs, Stenning says there is another very good reason for their creation: the estimated billions of pounds currently sitting unclaimed in accounts of all sorts. It’s impossible to say exactly how much money currently lies unclaimed, but most recent estimates are in the tens of billions. One study carried out in the late 1990s suggests that as much as £77bn, when shares, National Savings and insurance plans were included, was unclaimed at the time.
Stenning is certain the problem of forgotten, unclaimed assets is getting worse simply because people are now moving residence, switching jobs and have greater choice of financial products than ever before. He says: “Relocation is certainly a growing problem. In the financial services if you move once, we can find you; twice, with some difficulty we can just about find you; move three times and you are gone – we can’t find you unless you let us know.
“For instance, you might have several pension pots, an ISA here, a bank account there… it may just be few pounds here, a few hundred there. You might think you have informed everyone of your changed circumstances but maybe one or two of them slipped your mind. The beauty of a digital passport is that not only should it streamline and simplify your set up of new schemes and products, it might even unlock money you had forgotten about.”
TSIP hopes to secure the agreement of the UK government and regulators to use the UK’s new digital identification infrastructure – being developed by government under the IDAP initiative – for the passport. TSIP believes it would be in consumers’ interest for IDAP and the digital passport initiative to be cross-referenced and developed in parallel.
‘Back to the future’ with savings culture
Stenning is convinced a financial digital passport can form the spine that supports a transformation in the way Britons think about savings and retirement in an increasingly digital world, allowing people to quickly, securely and painlessly transfer monies, small or large, regularly into nest egg accounts.
“A new found enthusiasm for microsavings, that’s what I would like to see happen – a bit like the 21st century equivalent of Green Shield stamps [from the 60s and 70s]. There is a psychological element to it all for sure, getting people to appreciate that even a few quid here, 50p there, can over a relatively short space of time amount to a fair amount and over the long term comprise a very satisfying holding.
“For a big swathe of the population, saving a few pounds here and there is a very different proposition than committing to save a large amount per month in one fell swoop. Yet, by putting in small amounts it might be they get to the end of the month and find they have saved a similar amount. And it hasn’t been too painful, it hasn’t felt like you’ve parted with a large amount of cash, it’s avoided the anxiety of having to write a cheque or transfer it in one go.”
“A new found enthusiasm for microsavings, that’s what I’d like to see happen.”
If all that sounds like old school savings philosophy gone digital, Stenning for one is making no apology for it: “I guess it is an old fashioned way of going about it but there is no way of getting around it. We have become a nation of spenders and if we don’t address this problem then around 2035, there could be catastrophic implications for the social and economic cohesion of our society, much bigger than what we have seen with the financial crisis.
“Around 2035 we’re going to reach a tipping point where a generation, currently in its mid-40s, is going to retire worse off than the previous one, the first time that’s happened for 100 years, basically since the creation of the welfare state. By 2035 a new cohort will be entering retirement that, as it stands, will have little or no money to spend as they enter this part of their life. Historically, one of the mainstays of spending in society is the older generation and if that group no longer has the same spending power, then achieving GDP growth is going to be pretty challenged indeed.
“And the picture gets worse because we now have people in their 30s unable to get their foot on the property ladder. Forget generation Y, it’s probably more appropriate to call them generation rent.”
Stenning welcomes George Osborne’s “very initial” step of helping young people get on the property ladder though the Help to Buy Isa. “We at TSIP believe much more can be done here and it’s something we will have more to say about.”
Widespread support from across the financial and political spectrum
It would be fair to say that when the TSIP initiative was launched in November 2013 it received very little attention, with many having perhaps viewed the whole exercise as simply a PR exercise by a City under sustained attack in the wake of the financial crisis. The sheer diversity of TSIP players, many competing against each other in the market, certainly did not appear to augur well for any serious output from the group.
But against the odds, the initiative does look to have secured the interest and support of the main political parties, as well as the FCA and, crucially some consumer groups. Stenning points to Osborne’s pensions overhaul last year as providing some tangible evidence of TSIP’s growing influence. “It was great to see Government taking the first steps with encouraging intergenerational wealth transfer, however it was particularly pleasing that the debate on whether this is beneficial has been won and is now recognised as a good thing and should be encouraged.”
“Another thing we have looked at closely is using traditional sources of savings to help people take their first step on the housing ladder – again I think we have won that debate [with the Help to Buy Isa]. Now whether that concept can be facilitated further via pensions for example, or other longer term assets, that is something TSIP want to also consider.”
Stenning says the success TSIP has had so far owes much to diversity of its members: “Importantly we have got consumer groups around the table. There are also more than 40 City institutions involved – it’s been really pleasing to see everyone leave their commercial interests at the door – as well as have the involvement of companies like Microsoft. I think the diversity of membership means that the FCA, like the political parties, is very interested in what we are saying and proposing. ”
“We have become a nation of spenders and if we don’t address this problem then there could be catastrophic implications 2035 onwards”
Aside from getting involved in the nitty gritty of government savings, pensions and investment policies, TSIP is keen to help develop financial education. “It really doesn’t make sense that so much of our financial expertise, skills and knowledge just sits within the industry. It’s great to see financial education on the school syllabus but I am sure we could help teachers in schools and colleges much more.”
More broadly, he points out that are currently some 130 entities in the country, including the likes of not for profit charity foundations, providing financial information. To Stenning, that seems like 129 too many: “They are all doing good jobs I am sure, but everyone’s coming from different directions; with explanations and definitions of financial terms, products all over the place. There is a lack of co-ordination. So how about getting consistency of advice and information out there for the general public, across the whole spectrum of financial activity? I think as an industry we can, and should, help with that. If we can streamline and simplify client take on [via digital passports], remove some costs, then perhaps we can reinvest those savings in education.”
What’s good for consumers is good for the financial services industry
Stenning is alive to concerns that, as with the TSIP initiative, the idea of a financial services industry getting so involved in education might be seen as yet another ploy by the City to simply garner more business for itself. He says: “I understand those concerns. But we are trying to help people to save more. Yes, of course, it’s not completely altruistic because if people save more, as a financial institution, there is a bigger pot of assets potentially – it’s not a given but we have the chance to benefit from that. And I hold up my hand to that – it is a vested interest.”
“But what I really believe is that if we can start creating longer-dated pools of assets that can be reinvested productively into the fabric of this country, that can only good for everyone. Imagine one day people seeing their grandsons and granddaughters working in companies that their money helped support and build, know that they have created their jobs and saved prudently for everyone’s benefit. There is then a sense of purpose that goes beyond the individual, institution or even political realms; people develop an affinity with what they are doing that breaks through all these barriers we are currently hampered by.”
Looking ahead, the next major report from TSIP is due in August. There should be more on inter-generational transfer, linking up traditional sources of saving with non-traditional sources, and encouraging people to save more, particularly pensions through tax incentives. TSIP wants to also focus much more on the UK’s growing army of self-employed, a group Stenning believes tend to be overlooked: “All the focus, the talk seems to revolve around employers and their employees, for example around the issue of [pension] contributions. Quite a few people work for themselves and all that doesn’t necessarily apply to them. We need to think about the self-employed a bit more I think.”
He adds: “The August report will aim to build on what we have done already. We have been getting really good traction with our proposals thus far and I am delighted by that. It’s not just been from politicians, the FCA and consumer groups. HMRC, Department of Work and Pensions and Treasury have responded very positively too, which I am particularly heartened by.”
Not surprisingly Stenning is diplomatic about who he would like to see win the election: “It’s great to see greater focus on savings in the recent Budget, the chancellor listened and is changing the savings environment. But for us, the savings agenda needs to be depoliticised altogether. All the parties recognise we need to help support savers to a greater extent.
“At TSIP we have gathered all the main consumer-facing financial actors around the table, with commercial interests left at the door. As long as we remain focused on the consumer, keep that at the forefront of what we are trying to achieve, then the issue of who will win the election, questions like will it be a coalition, a minority…all that kind of dissolves. We should be agnostic. The public will make the decision as to which political party gets in and then it’s up to us in financial services to work with whoever is elected to create the architecture, the very fabric of the savings environment that the public can benefit from.”