Those on lower incomes, with no fixed abode, with additional needs or immigrants face significant challenges accessing basic, affordable and appropriate financial products. Opening a bank account without passing stringent credit checks, as well as providing numerous documents to satisfy Know Your Customer (KYC) requirements can make it near impossible for some. In a world where payments are increasingly automated, those who previously managed their money using cash, find themselves increasingly at the edge of financial society.
We have seen a huge rise in payday lenders, however whilst these companies have very positive customer net promoter scores, they are charging interest rates the likes of which have not been seen in the UK market previously. This makes it increasingly difficult for those who find themselves at the edge of financial society to manage their money, in many cases causing them to spiral into debt.
Action is required to ensure that these individuals don’t find themselves further excluded from society through a lack of access to financial products which meet their needs, whilst ensuring that the industry doesn’t develop further problems such as the recent PPI and growing package current account scandals.
Many in the UK have grown up without a basic education in financial management, and with the recent changes to pension schemes allowing individuals to withdraw up to 25 per cent of their pension tax free, this problem will only be compounded as people use their pension pots to fund essentials.
Financial education is a must for all adults, and whilst the government has taken steps to address this issue in schools, a number of generations have been missed. The banking industry should feel a responsibility to ensure that people are able to manage their money appropriately, and have access to banking products which are suitable for their incomes, which they can proactively and knowledgeably manage. Appropriate access to finances, and the ability to make payments for those on lower incomes, or with additional needs is critical as we move further into the digital age. However, with the digital age, this solving this problems should become much simpler.
Addressing these challenges will not be simple, quick, or without expense. Banks are currently stretched with swathes of regulation, which is taking up the majority of their change budgets, and at a time where the majority have not been profitable, these budgets have been significantly cut. Coupled with increasing capital adequacy requirements, and low margins due to the current low interest environment, and products which are not profitable makes this a difficult problem to address.
Achieving these changes in a low cost way seems optimal, and there is much that can be learned from the provision of financial services in emerging economies such as South Africa where low cost banking via ‘basic’ mobile phone applications has seen a dramatic increase in access to banking and credit products for the poorest of these nations.
Offering an industry-wide shared service, which provides access to appropriate products, which can be easily accessed, coupled with guidance and education could be another option. If these challenges are not proactively resolved by the industry itself, then it is likely that regulation will be required to deliver it. It is time that the industry as a whole takes action to address these challenges within our society.