Comparing comparison sites
Can you trust comparison sites to find you the cheapest deal and how do they work?
Image: Lewis Whyld - PA
Financial comparison websites have multiplied almost as fast as hormonally charged rabbits in recent years as copycat entrepreneurs all rush to get a slice of this lucrative market.
There's no doubt they've proved a money spinner for their founders: the industry is now worth more than £1 billion, with the Office of Fair Trading estimating that 60% of UK internet users turned to a financial comparison site before parting with their cash.
As if further proof was needed, Moneysupermarket.com has grown into a FTSE 250 listed company over the past 10 years with revenue of £179 million.
This is all very well for the companies but how do they measure up for consumers?
More choice, fewer options
In theory, this jostling marketplace should lead to more choice, lower bills and ultimately a healthier bank account for web-savvy bargain hunters. Reviews from fellow users, money saving newsletters and the prospect of financial rewards such as vouchers have only helped to increase their popularity.
In reality, however, navigating the minefield of comparison websites can still require lashings of patience and an eagle-eye to make sure you're getting the product you actually want at the lowest price with no unexpected hidden charges lurking in the background.
"The notion of the 'comparison' site has been one of the greatest marketing myths of the noughties," said Ian Williams, managing director of Cavendish Online.
"Consumers have been fooled into believing that they are accessing the whole of the market through an independent quotation service, when in fact they are merely engaging with an advertising portal."
Problems and benefits
It's not that comparison sites don't have their uses - no one wants to feel a cloud of mind-numbing boredom descend as they input their personal details for car insurance for the 17th time in an afternoon, but they're still far from being a one-stop shop.
No one site covers all financial services providers so it pays to check a handful to get a broader view of the market - and the cheapest price.
However, consumers must give exactly the same responses for each of the questions in order to get an accurate comparison, changing just one can skew the results significantly.
There are also lingering doubts over the whole impartiality question. Some of the biggest names in the game are owned by insurance groups - for example, confused.com is part of the Admiral Group while Comparethemarket.com is owned by the Budget Insurance Group - but these maintain they offer a completely independent service and offer services from a wide range of providers.
Many also have exclusive deals with suppliers to ensure they're not simply cut from the loop as the consumer goes straight to the provider.
How they make their money
Regardless of size or specialty, all are keen to push the most lucrative agreements they have with their commercial partners.
These paid-for promotions are often highlighted as "sponsored links", "best-sellers" or "editor's choice" and feature in prominent positions on the site - often at the expense of the better deals.
Both BT and British Gas have traded blows with comparison websites for being unfairly represented on the best buy tables because they had not signed up to a commercial deal. Meanwhile, Direct Line is so proud of actively avoiding comparison sites it employs the voices of Paul Merton and Stephen Fry to tell you so.
The ways in which the sites make their money is also something of a grey area. Generally it comes down to click-through payments - sometimes with a spot of advertising thrown into the mix.
This notches up the profits every time a bargain hunter makes the jump from the comparison site to the supplier's own or an "introduction fee" every time it refers a bargain hunter who fills in a lead form for mortgages or annuities or submits an application form for products such as savings, loans or credit cards.
Energy companies and insurers typically pay between £30 and £60 for each new customer they get, although payments for loan referrals can be as much as £100. Click throughs tend to pay around £3.50 regardless of whether or not the consumer then parts with their cash.
Although these costs are not passed onto the consumer, the pressure is on for businesses to get cash for clicks in a fiercely competitive market place.
Which is best?
Last year the Financial Services Authority published a review of 17 price comparison websites. It found that information on these sites was not always displayed as clearly, fairly and accurately as it should be and that some websites focus too heavily on price at the expense of the policy on offer.
Consumer group Which? recently carried out its first ever satisfaction survey for the ever growing financial comparison site industry and the results were not as pretty as a Russian-sounding meerkat called Aleksandr or the Dragon Den's Peter Jones would have you believe.
It found a marked lack of trust and a high degree of confusion among users. Around a quarter of people surveyed said they found a cheaper quote elsewhere with more than half just going directly to the provider.
"If you're shopping around for a good deal, it makes sense to go to more than one site and be aware that some companies aren't featured," said James Daley, editor of Which? Money.
"Watch out for things like voluntary excess, and make sure the policy you're offered is what you actually want."
The Which? research highlights an over reliance on default options on some sites, which the consumer group says can make it easy to miss questions without realising or give a wrong answer which would then affect the quote.
While Comparethemarket.com and uSwitch.com have very few of these options, it found that Moneysupermarket.com automatically defaults to "your house is occupied during the day" on its home insurance - pretty useless if you happen to hold down a full-time job.
What's more, comparison sites can boost their revenue streams further by passing on details to their partner sites who can then start the sales drive of calls and e-mails. Opting out of the marketing communication can be more arduous a task than the weekly Saturday morning shop with sites such as Comparethemarket and Gocompare directing you to a completely separate page.
Can you trust them?
This lack of transparency over pricing and privacy makes the industry more than a touch bewildering for the average internet shopper.
The Comparison Consortium (Coco) tried to address these concerns with a new voluntary code of conduct earlier this year - although big players including uSwitch, Confused.com and Gocompare refused to back it.
However, around a dozen sites comparing energy providers have also signed up to the Consumer Focus Confidence Code - a mark of impartial and accurate information which goes some way to building fledgling levels of trust.
Despite the negatives, comparison websites are still a useful consumer tool with a loyal bank of aficionados and can produce significant savings.
"Moneysupermarket.com was visited 120 million times by customers last year. On average we saved our customers £157 on their motor insurance and £174 on their utilities bills, among many other savings," Ian Williams, director of communications at Moneysupermarket, told MSN Money.
"There is no question that customers who use Moneysupermarket.com to shop around and compare products do find great deals and make big savings."
With the marketplace always evolving, it's the big name players with the huge advertising budgets who thrive. Accountants Deloitte predict that the number of price comparison websites will drop to just five in the next couple of years as underwriting losses in the car insurance market take out the minnows.
However, that's not stopping new players from entering the market: they just have to dangle ever tastier carrots in front of the bargain sniffing noses of the seasoned shopper.
Argos is the latest to join the fray with its Compare service covering the full financial service spectrum from insurance through to credit cards and utilities. Shoppers who buy car insurance will receive £30 worth of Argos vouchers or £15 for forking out on home insurance.
While there's nothing like the prospect of free money to reel in cash-strapped shoppers, just how many bite remains to be seen.
Indeed, comparison sites may have their own agendas but they also have their uses in the battle against sky-high bills.
Editor's note: MSN Money is partnered with the comparison services BeatThatQuote and Simplifydigital because we believe overall they offer value to our users
Please note that articles on MSN Money do not constitute regulated financial advice, which recommends a course of action based upon the specifics of your personal circumstances. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. You can search for an IFA in your local area. Any statement regarding financial services products and tax liability is based on legislation and tax practices as at 6 April 2011, which is, of course, subject to change. The value of any tax benefits or reliefs depends upon the individual circumstances of the investor. When investment performance is mentioned you should remember that past performance is no guarantee of future performance. Where products have an underlying investment content, in many cases the value of the investment can fall as well as rise. For with-profit based investments, there is no guarantee as to the level of bonuses that will be declared, if any. Where mortgages or secured loans are explained do remember that your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it. All mortgages are subject to underwriting, status and are not available to people under the age of 18.
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