Financial Exclusion of Individuals
Financial Inclusion / Exclusion
Individuals
What is financial exclusion?
Broadly defined financial exclusion is the inability, difficulty or reluctance of particular groups to access mainstream financial services.
This can range from those who have no access to a bank account as well as individuals seeking to improve their financial well-being by better managing their savings and financial commitments.
It is against this backdrop that the All Party Parliamentary Group (APPG) FinTech (Financial Technology) believes that FinTech has the capacity to help foster financial inclusion, facilitating access to banking and other financial products for a diverse cross section of society.
Who is affected by financial exclusion?
Financial exclusion affects a wide range of stakeholders, but tends to disproportionately impact individuals with low or unsustainable incomes.
It is important to note, however, that FinTech is not just about targeting those at the base of the pyramid but rather making financial access available to everyone, everywhere.
Indeed according to the World Bank the number of people without any access to banking services known as the ‘unbanked’ - number almost two billion (or 38% of adults in the world) whilst according to the Financial Inclusion Commission in the UK alone there are nearly two million such individuals.
Digital exclusion
A recent report by the digital skills charity Go On UK, found that 12.6 million adults, 1.2 million small businesses and over half of all charities lack the basic digital skills needed to succeed in the digital age.
Indeed the London School of Economics and Political Science mentioned that the lack of basic digital skills and access in already disadvantaged areas is likely to lead to an increase in inequality of opportunity around the UK.
The trouble with British banks (Reported from the RSA “The Road to resilience”)
Financial Exclusion
Part of the reason is a deliberate failure to keep credit flowing within communities.
Following the 2008 financial crisis, a £500bn bail out of British banks alongside new regulatory arrangements, were seized upon by banks to, in fact, shrink the credit supply to vulnerable citizens.
At the same time communities, localities and the vulnerable and marginalised people within them suffered.
The UK has lost almost two thirds of its bank branches in the last 30 years. In the past decade, the rate of closures has intensified, hitting rural and more deprived communities the hardest.
Access to free-to-use ATMs has been following suit, with 13 percent of all free-to-use ATMs in the UK closing in the past year.
Meanwhile, over one million adults in the UK still lack a full bank account and around 3.2 million people are in severe problem debt. This creates barriers to participation in the economy, which have been exacerbated during the Covid-19 crisis.
The majority of people (75 percent) hold their main bank account with one of the major four banks.
Not only are banks failing to provide credit, as well as failing to support growth and expansion in the economy, but they are leaving our most vulnerable high and dry and exposing them to a future shorn of participation in financial services.
Regulation post 2008, especially around capital adequacy ratios, has only served to exacerbate these problems, as banks have yet more reasons to vacate whole swathes of our country.
Bloom’s comments on the Reports
Bloom considers that the report was overall very constructive but yet again it appeared to miss the main problem - the lack of coverage available of alternative fair finance lenders in the UK and what to do NOW.
From details provided by CfRC in 2 reports on “Fair for You” an affordable lender, the following statistics were noted
2017 - “It was postulated that it had to change and a report at that time in 2017 called for a shake up of low cost credit provision for the 12 Million people estimated to be unable to access “mainstream” credit.”
2020 - Report stated It is estimated that around 15 million people in the UK struggle to access affordable credit.
Please note the following facts about existing Credit Unions and Responsible Finance Organisations (RFO's) in the UK
Bank of England statistics issued on 28th August 2020, shows there are now just 277 remaining Credit Unions in England, Scotland and Wales with 145 in Northern Ireland.
The Community Investment Steering Group Report Nov 2019 - Scaling up Community Investment in the UK states that there are only 23 active RFO's in the UK.
From these statistics it estimated that no more than 5 - 10% of the UK has any coverage available from a Credit Union or a RFO. There are 69 cities and over 48,000 towns in the UK. In the last 10 years many Credit Unions have been closed and NO services replace those lost to the massive detriment of the Community in which they were based.
Additional Observations
The Chief Ombudsman, Caroline Wayman from the Financial Ombudsman Service (FOS) has recently made the following observations.
When the last financial crisis hit, payday lenders grew out of consumers’ need for cash at a time of low wages and banks’ lack of appetite to lend. 2.
She says the constantly evolving credit market creates challenges for the service, especially given that some of the legislation governing it dates back to the 1970s.
The financial regulator’s decision (FCA) to force lenders to offer payment holidays has kept people from the ombudsman’s door so far, but the service is keeping an eye on complaints.
“We stand ready to help people who do have concerns,” she says. “But it would be good to try and get ahead of that wherever possible and help people to transition out of those arrangements. That’s not for us to do, but where we can contribute is being able to share insight from what we see in our cases and the things that can go wrong.”