comparing multi-level marketing of financial services in humans with worthless donations in spiders
Ukrainian financial services market: state regulation …
Some observations on regulation of financial services market in Ukraine gave an idea on its participants behavior. Ukrainian financial market is closed to global competition, legislation protects local financial companies from foreign competition in Ukraine. Firstly,
only Ukrainian – based entities are allowed to provide financial services in Ukraine, the same is true for insurance companies (let us take insurance as good example financial companies). Secondly, Legitimate insurance companies enjoy tax benefits under the Ukrainian Law: insurance agents are exempt from labour regulation (agent – principal relations are concluded as “civil contracts” with self-employed individuals). In addition, insurance services are VAT -exempt. This meant to be considerable competitive advantage for legitimate “white” insurance providers, amounting to around 60%-off of price of insurance services.
… and resulting behavior
Surely, Ukrainian tax officials are trying to restrict usng civil contracts with their agents by insurance companies. For tax contribution of self-employed individuals are pea-nuts comparing to budget proceeds from income tax and national security contributions of employer/ employee contracts concluded in line with Labour Law of Ukraine. While “grey” insurance agents may avoid state regulation and taxes altogether. In turn legitimate insurance companies strive to protect their market by lobbying legislation imposing state regulations over “grey” agents.
Understandably, insurance market is highly competitive: in addition to “traditional” insurance companies, and “grey” agents, banks want their cut of market pie as well. Recently the largest and most popular Ukrainian bank “Privat Bank”, entered retail insurance services market. For instance, bank offers services on opening account together with life- and auto- insurance services. The bank acts as an agent to selected (“accredited”) insurance companies, thus could earn agent commission as well. Thus, banks continue acting as insurance agents in car sales on credit: it is next to impossible for buyer to choose an insurer for this deal: usually bank “advises” its accredited insurer.
Evolutionary response to environment: spiders and humans
Let’s return to earlier mentioned essay on evolutionary biology and marketing in spiders. As evolutionary response to deception, female spider terminates process duration when fake gift is offered. Thus, human habitual reply to cheating is not honoring “fake deal”. In response to pyramid’ forming in disguise, prospective agents may quit before time, or trick in turn, using acquired “sacred knowledge” to no benefit of the Company. In fact, daughter company of OVB Holding AG has been operating in Ukraine since 2007. It turned out, individual agents of multi-level marketing are consented willing participants in this type of financial pyramid. So counterintuitive conclusion is: multi-level marketing of financial services is evolutionary response of human altruism and entrepreneurship to current conditions of Ukrainian financial market.
As worthless gifts donation evolved as a part of a spider’ nuptial game, a multi-level marketing entered financial services as a response to financial market conditions.