Cash for clicks

PORTFOLIO POINT: Awards help consumers choose financial providers, and are a nice earner for the judges that hand them out.

High-profile financial comparison websites are charging banks big bucks for referrals and promotional opportunities. What’s more, the websites – or “infomediaries” – in some cases hand out awards to products that appear deficient on closer inspection.

Eureka Report has been told by financial institutions that the licensing fees paid to Canstar Cannex – one of the country's leading financial infomediaries – range from $30,000 to $90,000 on dozens of products.

Neither Canstar Cannex nor the major banks are willing to reveal the value of the licence fees that must be paid before financial institutions can promote their “award-winning” products using the infomediary’s commercial logo.

However online product promotion and origination is one of the boom sectors of the financial services market, with banks and credit unions now coughing up tens of millions in annual fees and commissions.

The bonanza was reflected in the recently released interim accounts of ASX-listed financial product comparison service Infochoice, which reported a 159% rise in revenue for giving product referrals to financial providers.

Over the past two years the commercial links between infomediaries and the banks have deepened as they adapt to the new business environment.

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One of the most controversial practices concerns the payment of licensing fees by institutions that win product awards from intermediaries such as Canstar Cannex. The banks pay a licence fee to Canstar Cannex if they want to use the intermediary’s official award logo in advertising.

The banks have developed a bad habit of not disclosing these payments in advertisements, and nor does Canstar Cannex reveal that it may receive these fees in special reports it publishes to promote product awards.

Disclosure is poor and in some cases so too is the selection criteria used to determine product winners.

ANZ Bank was judged the winner of the Canstar Cannex “First Home Buyer Award 2010’’ in a year when its mortgage settlement systems were on the blink and its standard variable mortgage rate was higher than its competitors.

This award is made annually to the lender deemed by Canstar Cannex to provide the best service and product to first home buyers in all stages of home ownership.

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In a promotional report published by Canstar Cannex to highlight the award, the infomediary did not disclose that it may have been in line to receive a licence fee from the lenders it assessed, including ANZ.

Canstar Cannex founder and director Andrew Willink indicated the company would consider making such disclosure in the future, saying it was “a helpful suggestion and I will pass that on. I see the point.’’

Nevertheless, ANZ’s right to claim the mantle of best lender in the first home buyer market was tenuous.

ANZ won the award even though its flagship standard variable mortgage was higher than market leaders such as Commonwealth Bank and NAB in the preceding 12 months.

Canstar Cannex’s head of research, Steven Mickenbecker, defends the selection, saying that ANZ had one of the cheapest variable rate mortgages in the market, which, for technical reasons, could not be classified as “standard variable’’.

“ANZ has had the lowest variable rate,’’ he says.

Strangely, a bank’s ability, or lack thereof, to provide an efficient settlement service was not one of the assessment criteria.

ANZ’s mortgage settlement systems were in disarray from the second half of 2009 until at least March of this year following a botched outsourcing of its property settlements area.

In late February the situation had become so serious that ANZ’s head of mortgages, Michael Bock, set up a special team of senior executives to drive urgent changes to the group’s mortgage processes.

In a written response to Victorian property lawyers on February 24, Mr Bock apologised for the delays affecting lawyers and their property buyers.

“We are working hard to fix these problems '¦ We understand your concerns, and ANZ is committed to making the necessary changes to ensure we meet your needs and clients’ expectations for timely and efficient settlement,” Mr Bock stated in the letter.

Canstar Cannex conducted its assessment of ANZ’s performance as a lender to first-home buyers in April – a month after news of the settlement woes broke in the press.

ANZ’s performance and mortgage products were compared against 400 loans from 59 other lenders. In the report published on its website to promote the award, Canstar Cannex states that it “cherry-picked the features of utmost importance to first-home buyers and evaluated how lenders matched up in their offerings”.

The report added that “we looked at how financial institutions shaped up in all phases of home ownership, as they apply to first timers”.

As a stand-alone entity, Canstar Cannex earns revenues by collecting fees from financial institutions for licensing its corporate signage. The institutions pay Cannex a “licence fee” for the right to use their ratings assessment in advertising.

Eureka Report has been told by financial institutions that these sums are between $30,000 and $90,000 per product.

This fee range was confirmed by several institutions, which have requested anonymity, but Willink refuses to comment on the accuracy of the information. “We have a range of fees relating to star ratings and to awards, so there’s quite a range of fees,” he says.

When asked why the dollar value of those fees was not made public, he says: “Every business has commercially sensitive information and this is our commercial sensitivity.”

With more than a 1000 products being assessed annually the revenue haul from the Star Ratings and Awards programs would likely run into the millions.

One of the curious features of these licensing arrangements is that the major banks and other providers do not disclose these fees in advertisements for their products that include the Cannex logo. However, three of the major banks – ANZ, Westpac and Commonwealth – told Eureka Report that they pay the licence fees.

“The bank, like all financial organisations, does pay a fee to Cannex when it wishes to utilise in its advertising the fact that its products have received a five-star award rating,’’ says CBA spokesman Bryan Fitzgerald. “These fees are post any awarding of the star rating and are only paid if the bank decides to utilise this independent rating.”

NAB, which has recently trumpeted its commitment to being “open and transparent”, declined to comment on the licensing fees. In an email response to questions about the licensing fees, a NAB spokeswoman stated that “for more information regarding the business models adopted by Cannex, Infochoice and Mozo – please discuss directly with them.”

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While Canstar Cannex specialises in collecting fees through licensing deals, most other infomediaries are cashing in on “cash for clicks”.

RateCity, Mozo and Infochoice collect cash from the banks whenever visitors to their websites click through applications for loans and deposit accounts. Some banks will also pay these infomediaries fees if visitors to the websites merely enquire about a product by clicking on a product link.

The online infomediaries are increasingly assuming functions typically associated with introducers in the financial services market by leveraging the public trust in their traditional activity of publishing rate tables and other comparative pricing information.

They are now also originators of business for lenders, deposit takers and insurers.

As such, these organisations can no longer be described as pure information providers because they have deliberately positioned themselves as players in the transaction process between consumers and financial institutions.

While we know that many fees exist, none of the leading institutions are prepared to say how much they shell out under the “cash for clicks” arrangements with RateCity, Infochoice and Mozo. Nor do the infomediaries volunteer such disclosure.

“That information is commercial-in-confidence,” says Mozo managing director Rohan Gamble. ANZ spokeswoman Vanessa O'Shaughnessy cites the same reason for keeping the payments under wraps: “We’re not willing to disclose these figures, as they’re commercial-in-confidence.”

Canstar Cannex claims it does not accept fees for providing sales leads and referrals to financial institutions. Notwithstanding this claim, Canstar Cannex refers all customer enquiries about financial products to a related party, RateCity Pty Ltd.

RateCity is a joint venture between shareholders of Canstar Cannex and ninemsn. It provides consumers with an application facility for a wide range of banking products and receives fees when consumers click on the products of financial institutions listed on its website. It also receives additional cash payments if a visitor to its website applies for a retail product.

Both RateCity and Canstar Cannex were founded by Andrew Willink, who is a shareholder and director of both companies. Another Canstar Cannex stakeholder, Lachlan Given, is also an investor and director of RateCity.

Canstar Cannex refers customer enquiries about products on its website at no cost to RateCity. While this preserves Canstar Cannex’s status as an infomediary that does not accept fees for providing customer leads or referrals, it also means that the common shareholders of both companies potentially still benefit from the website’s ability to generate leads.

Willink insists that Canstar Cannex is a fee-free zone in terms of product leads and referrals, even though he is a founder, chairman and shareholder of both companies. He also says that there is no conflict of interest involving him as founder, chairman and shareholder of both businesses.

“I think we’ve certainly structured it in such a way to ensure that there is an absolute wall around the business of Canstar Cannex,’’ he says. “They’re different businesses, different boards and yes there is a shareholder, that is Lachy and myself in RateCity that is common to Canstar Cannex.”

ASIC records show that a company owned by Willink and Given holds a majority stake in RateCity, but Willink told Eureka Report that was about to change so that ninemsn would have a 50% stake. A spokesman said that as part of their joint venture arrangement the shareholders have equal voting rights at board and shareholder level.

Eureka Report sought comment from Infochoice about the issues raised in this article, but our phone calls were not returned.