FCA has published a paper looking at how it should approach fairness in price discrimination in financial services. It notes that price discrimination is not in itself unfair as practices such as student discounts are widely accepted. But others are more controversial, such as where longstanding customers receive a worse deal than new ones. Views are divided on the fairness of practices that look to charge inert customers more than engaged ones. FCA has looked at economic and distributable fairness and how they interact, so as to set a framework for a fairness analysis.
FCA’s report concludes that three key conditions must apply to make price discrimination possible:
- consumers must have different levels of price sensitivity;
- firms must be able to distinguish between less and more price-sensitive customers so they can charge accordingly; and
- firms must be able to adapt products to ensure different prices can be charged to different consumer groups.
FCA has now identified some evidential questions which it thinks are key in assessing distributive fairness, on which it has not previously focussed. This helps it to decide whether to take action, and, if so, how.