Financial inclusion matters to everybody, not just the disadvantaged or vulnerable according to the House of Commons Treasury Committee and I agree with them, on that. When it comes to who should be responsible for what I don't entirely agree but that isn't the point of this post. What I'm pushing here is that we all need a mind shift, even me.
So what is it to be financially excluded? and why could this be detrimental?
Our daily lives are a number of transactions. These transactions most often need to be verified behind the scenes. As we move about our lives we are creating data points. Simple journeys build a picture about us never mind the more complex life altering decisions like taking on mortgage debt. When we can't complete a simple journey this can be stressful, inconvenient and costly. If you aren't included in the financial system, taking a bus journey can be hard never mind getting a mortgage.
Take Jane, a 45 year old women living in a remote area. It is 2:30pm and she wants to take a bus that will arrive at her destination by 4pm. She wants to get the bus to visit her bank. There are no bank branches in her town. The branch closest to her operates on reduced opening hours. She has a visual impairment and that morning she received a posted bank statement that she couldn't read. She has online banking but the statements in her digital inbox don't make sense either. She's spent 2 hours on the phone trying to find out what has happened to the money in her savings account. She is now worried and wants to talk to someone in person. She doesn't have a current account with a debit card just now, she struggled with an overdraft in the past. She couldn't get a credit card because of her overdraft problems. She doesn't have any investments or additional income. The walk to the nearest post office will take her over an hour. She has a £20 note on her. The closest shop is also over an hour away. There is nowhere nearby that she can swap or break the note for change. The bus company need exact change for the bus fare. They could take a contactless card but she doesn't have one. They could take Applepay but she doesn't have a credit or debit card and couldn't afford an iPhone or Apple watch. The driver recommends she download an app and buy tickets via the app. In order to use the app you need Paypal or a debit or credit card. Again, she doesn't have these so she can't use the app. Her bus journey costs her £20 instead of £2, 10 times more than it should. The whole point of her journey was because she was worried about her finances. You might think there would be someone helpful on the bus who would lend her the money or swap for change. If there is no-one around do we expect the bus driver to let her on for free? Or do we look at the systemic and structural issues at play?
You might think that the scenario I ran above is far fetched. There is data to show that it is all plausible and happening on a daily basis. The Financial Conduct Authority's Financial Lives Survey reported that:
- 3% of UK adults (1.3 million) have no current account and no alternative e-money account
- 3.1 million adults have high cost loans
- Nearly 6 in 10 (57%) of UK adults have no cash savings or savings of less than £5,000
- 7 in 10 UK adults have no investments at all
- 31% of adults have no private pension provision
- The state pension is the main source of income in retirement for 44% of the population
- 5.3 million adults in the UK never use the internet, of those 3.7 million (70%) live in rural areas.
If people aren't included in the system, and there are barriers that continue to keep them excluded, we all fail. As Sian Williams, Director of Financial Health Exchange at Toynbee Hall, pointed out to the Treasury Committee:
Financial services are an essential. We are in an environment where you have to be able to transact to survive. That is the truth of the capitalist economy. I do not get my food and housing for free, so you have to let me transact to make this economy work. […] Financial services have to be an essential - it is a utility - otherwise, the market does not work.
In their report the Treasury Committee highlighted both the importance of financial inclusion and the efforts made to increase financial inclusion so far. It also asked pertinent questions, for example, do vulnerable customers pay more? It covered a breadth of issues and made a number of conclusions across 80 pages, not all detailed here. Its recommendations included:
- Firms should be required to always act in customers’ best interests – a legal duty of care may be necessary
- Equality and Human Rights Commission (ECHR) needs better resources to enforce Equality Act
- Enforcement of banks’ compliance with Equality Act should be transferred to Financial Conduct Authority
- Firms should be required to publish loyalty penalty
- Bank branches and free-to-use cash machines should be preserved
- Post Office must stop subsidising big six banks’ lack of branches
- Banks must fund shared hubs to prevent loss of ‘last bank in town’
- Voluntary spending blocks should be explored
I haven't gone into every recommendation. The key take away from this note is that we all need to change the way we think. Consumers, government, regulators and financial services providers can have endless debates about who should do what. Ultimately we all need to accept that the structure of our economy is not changing, we'll have a capitalist economy post Brexit, and the systemic issues inherent within financial services need to be tackled. Fighting about who'll do the heavy lifting is not going to fix things. We all need to see financial inclusion as being essential to enabling everyday life in this country.