@philhewinson I’ve thought a bit about this so if you’ll allow me potifications…
As others have stated, conceptually you have a problem with both models presented here such that there’s always going to be something for a distrustful customer to point at.
Flate Rate Commission
To take the ‘worst case’ analysis and looking in the energy market for ease of presentation:
Flat Commission incentivises the bank to switch every customer to any plan every year to maximise revenue regardless of customer benefit. (No incentive to allow customers to remain on existing plan if cheaper.)
Lifetime revenue share allows the bank to switch every customer once then leave them to their own devices and keep taking a cut. (Reduced incentive to introduce customers to new plans.)
(please remember this is all theoretical at this point! I’m not making any accusations…)
Of the two, I can see a better justification for the second since there is nothing actively preventing the bank from recommending a new plan since revenue will be accrued from either remaining or switching under these circumstances. Given the normal practice of energy firms being a fixed price for a fixed period, however, that does leave Monzo getting paid even once the customer has reverted to a more expensive ‘standard tariff’.
The proposal for ‘limited time revenue share’ addresses the problem with option 2 but pushes us straight back into the problems associated with option 1 where it’s more profitable to make sure everyone switches every year.
Once we start taking about ‘percentage saving’ based commission figures, things start to get more complicated.
Flat commission incentivises the bank to switch every customer to the lowest new plan every year to maximise revenue. (No incentive to allow customers to remain on existing plan if cheaper.)
Lifetime revenue share incentivises the bank to keep every customer on cheapest plan for them and keep taking a cut. (Positive incentive to introduce customers to new plans.)
Clearly option 4 looks best here with the only possible issue being that if I decide there’s something I don’t like about the new recommendation and I decide not to switch, the bank still gets money even though I’ve taken my own decision and they’ve done nothing for me. Some may not be happy with that but I admit that I’m straining for a problem here.
The question of reversion to the ‘standard tariff’ at the end of a fixed term still remains, however. Why should the bank still be paid once the deal they recommended to me has expired?
The main problem I see here is one for the bank rather than the customer and it relates to how you measure a customer’s saving in order to base a revenue stream from it. I’ve never yet had an energy supplier correctly estimate my usage so, at the end of a fixed price term, they owe me in the region of £80 to £100. As a result, the amount I pay for energy each month is not a genuine measure of my costs. Clearly, it would be possible for me to tell you what tariff I’m on, but I don’t have to.
Presumably, for recommendations from the second year onwards, you’ll need to measure savings against the SVT I would have reverted to on the first year long contract you introduced me to?
I agree that compromises will be required, if only because I don’t think there is going to be a perfect model for this sort of thing. In hindsight, the energy market wasn’t the simplest thing for me to try anyway because of the time limited nature of the deals on offer.
I may have a rethink around annual car insurance, for instance, which would provide a simpler model to start from.