The scene: town centre of a mid-sized English town. Amongst the major retail brands and a few independent shops, the preponderance of pound, pawn, charity and betting shops points to the overall demographic of those who come to shop in the town centre.
A large majority of customers are individuals on low incomes – individuals living in households with an income of less than £27,465 p.a. Indeed, this definition of low income represents half of the UK’s adult population, or some 23.7m adults including 5.7m pensioners. That's a lot of people.
Also on the high street are branches of the five biggest retail banks, two large building societies, the Co-op, and Virgin Money, and the customer base visiting these branches is reflective of the general footfall in the area.
These branches (and the banks they represent) are of course there to make money from their customers, but the hypothesis that seems to be gaining ground is that they also have a wider responsibility in society. And if we believe this hypothesis then part of their responsibility must clearly be to provide banking products and services that serve the financial needs of the non-wealthy.
An excellent report just published by Toynbee Hall and Policis*, commissioned by the Payments Council, provides a clear articulation of these needs. It lists them as Control, Safety, Flexibility, Transparency, Predictability, Manageability, Affordability, Accessibility and Simplicity. The list is long but the industry seems to be taking action.
Banks and building societies have been radically adjusting how overdrafts are charged for current accounts and introducing features aimed at helping customers manage their tight cash flow, such as intra-day SMS notifications when an account is about to go overdrawn.
At the poorest end of the spectrum the EU Payment Accounts Directive is also forcing banks to ensure they have a basic bank account available to those that wouldn't normally meet their eligibility criteria, with no charges for day to day usage and controls to stop the account from going overdrawn.
But the report above highlights that charges are still disproportionately incurred by people on low incomes so there is some way to go here.
On the payments side, a range of options is already available for customers to choose from to meet their specific needs. But again improvement opportunities remain, especially in making real-time balances available and providing tools to enable customers to prioritise and flex the timing of payments around their cashflow.
New payment solutions entering the market will help further. As an example, Zapp is expected to allow customers to see their account balance before they authorise a payment transaction. A further recommendation made by the European Central Bank (ECB) as a result of their recent review into the security of mobile payments** is to allow customers to lower their own payment limits if they so choose. Indeed, HSBC is already offering this feature as part of their Paym mobile payment service.
In lending, the banks have some way to go. For evidence we can turn to the recent growth in the pay-day lending market. When in need of a short-term loan customers increasingly ignore the pawn shop and bank branch on the high street and get an immediate lending decision online from one of a range of new market entrants. The cash typically lands in their account within minutes.
But with new rules coming into force shortly expected to constrain the business model of pay-day lenders, the opportunity is there for banks and building societies to step up and fill a real need in the market for short-term lending.
So the banks are on the right path, but it always come down to people. The fact is, bank employees charged with developing products and services do generally not fall into low-income demographic (nor do the management consultants who work with them).
There is nothing wrong with that, but it does mean that anyone involved in developing banking services needs to take additional care and consideration, and expend effort and brain power to make sure that the products and services being developed really do meet the needs of all members of society.
The above-mentioned report provides a great starting point and some great insights for anyone involved in this area, but I would also recommend working an afternoon at a local bank branch as an excellent way of experiencing what real everyday customer needs are.
*‘The electronic payment needs of people on low incomes’, Anna Ellison, Sian Williams and Claire Whyley, Toynbee Hall and Policis, commissioned by the UK Payments Council, September 2014, http://www.paymentscouncil.org.uk/what_we_do/national_payments_plan/low_income_consumers/-/page/3089/
**‘ECB Recommendations for the Security of Mobile Payments – Draft Document for Public Consultation’, November 2013, http://www.ecb.europa.eu/press/pr/date/2013/html/pr131120.en.html