In the context of the Evolution of Standards of the Smart Campaign and its Responsible Pricing work stream, the Smart Campaign commissioned special research on alternative analysis methods for credit product pricing. This paper aims to provide an alternative to the market based comparative approach used for evaluating pricing for credit products under standards 1.0.
The Smart Campaign certification process currently (version 1.0) applies a market test to determine responsible prices: as long as an institution‟s prices are in line with its market peers, its prices are considered responsible. This test was selected rather than other measures because can be applied in a straightforward way. Nevertheless, the Secretariat, Certification Committee and the Smart Campaign Steering Committee have identified challenges linked to a market-based approach in the analysis of responsible prices for the purpose of financial institution certification (SC standard 4.1.1.) including:
- Markets are at different levels of maturity and not always functioning well (e.g., high priced markets, monopolistic or oligopolistic environment).
- The presence of “market leaders” in certain markets raises the question of whether leading institutions should be held to higher standards in terms of pricing, given their influence on the market as a whole.
- There is often difficulty achieving relevance and consistency in the creation of peer groups for pricing comparisons.
- The scarcity and poor quality of pricing data makes pricing comparisons challenging. The purpose of this project is to examine these issues and make recommendations on how to address them in the standard-setting and certification process