Cash for clicks

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.

Over the past two years the commercial links between infomediaries and the banks have deepened even further.

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.

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.

Click here to read the rest of the story at Eureka Report.