With the explosion of contactless and mobile payments, as well as a conveyor belt of new financial apps for our smartphones, you’d be forgiven for thinking that the UK is a step ahead of the curve when it comes to personal finance. Yet, sadly, despite these impressive advancements, financial exclusion still exists in the UK today. While most of us are familiar with checking our account balance on our iPhones, or even using quirky apps that help us track our spending on a monthly basis, this is a stark contrast to the financial experiences of 1.7 million adults in the UK.
At the end of March, the full extent of this problem was brought to light by the House of Lords Financial Exclusion Committee Report. The fundamental goal of the report was to figure out how to work towards a future whereby the “scandal of the poorest being excluded from even basic financial services” no longer exists.
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One of the primary recommendations within the report is the appointment of a Minister for Financial Inclusion. Having a government official devoted to solving this issue is a great idea in theory, and would really help to bring relevant parties together to shine the spotlight on the problem. However, for this person to truly make a difference, they must be ready to address a few key areas.
Bust the ‘free’ banking myth
While the myth of ‘free’ banking is beginning to dissipate, we need to ensure this façade is exposed once and for all. The banks have long been making money from current accounts through hidden fees such as on missed direct debits or extortionate extras like hefty charges on overseas payments.
These fees prop up bank revenues and can send vulnerable consumers into a world of debt. The real stinger here is the ‘unavoidable’ costs, where customers are forced to spend money that simply isn’t there – like the fees charged when you dip into your overdraft for a week or two before payday, for example.
This must be a top priority for an incoming Minister – they must realise that ‘free’ banking cannot be accepted as an industry standard because it does not exist. If it seems too good to be true, it probably is. Instead, the Minister must work to promote financial providers that are completely transparent – by charging a customer a monthly fee, for example, so they know exactly what they are getting for their money with no nasty surprises at the end of the month. Anything that adds to financial stress for vulnerable customers must be stamped out.
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By GlobalDataChallengers must be advisors
As a result of relying on the myth of ‘free banking’ for too long, traditional banks simply have no financial incentive to encourage financial inclusion. Their dependence on hidden fees as a revenue stream is now so severe that it stops them from looking to alternatives, meaning we are now truly at a ‘revenue over reason’ situation.
This is best illustrated in the instances of people being declined current accounts due to having a bad credit rating. The question we should be asking in response to these stories is: why should credit come into this if it isn’t a service they are asking for? Frankly, it shouldn’t. The banks rationale for asking the question is due to their credit and lending focused business model.
For banks, prospective customers are only valuable to them if they can lend to them in the future. While the government did force them to provide basic accounts, they do not promote them and consumer awareness is low. The banks business model means that they can’t make it profitable with legacy infrastructure, expensive branch networks, and slow, overbearing processes holding them back. This mentality means that if the prospective Minister only consults incumbents when looking to solve the problem, we’re unlikely to see any change.
Challenger banks take a rather different approach. Organisations that fall under this umbrella recognise that in order to serve this historically underserved group, it is imperative to challenge and change the status quo. Should we see the appointment of a Financial Inclusion Minister, this person much acknowledge this also, and be bold in challenging existing processes and assumptions. Risk-based decisions on whether to take on a new customer should be based on the product the customer is looking for, not what you think you might be able to sell them later. Therefore, it is absolutely fundamental that the Minister seeks advice and input from challenger banks in order to ‘think outside of the box’ and create solutions that will really have an impact.
Put a stop to ‘problem profiteering’
While bank greed is generally understood by the public, it’s sad to see that this mentality extends also to national customer advice and support groups. It’s not unheard of for challenger brands to attempt to join forces with these groups in a bid to tackle financial exclusion by promoting alternative services. Sadly, revenue bells start ringing, and these organisations can’t help but to start to look at what money could be made from a ‘lead referral’ type deal to alternative providers.
These organisations are designed to help the most vulnerable of consumers by guiding them to financial options that best suit their needs. They should be in no position to turn down potential landscape changing partnerships if they don’t receive a monetary ‘kickback’. Until this mercenary approach is dealt with, and advice bureaus start thinking about the wider benefits of financial inclusion and education, there is no way that they can fulfil support the function that they should be.
It’s great to see that financial inclusion has jumped up the priority ladder for the government, and a dedicated Minister could be the step required to drive real change. Providing the potential Minister keep this, and the other issues discussed, in mind there is the real chance that we can finally fulfil the needs of the financially underserved and look to a fully inclusive financial landscape. Situations don’t get better by chance, but by change, and we look forward to supporting the government on this journey to create a fairer financial system.
Mulenga Agley is VP of Growth at Monese
