Financial Inclusivity – driving positive change
Our last article looked at how financial inclusion delivers sustainability in developing nations but there is also a huge impact for us in the UK. Despite being the 6th biggest economy in the world, the impact of the pandemic followed by the cost of living crisis and rising interest rates have put a strain on much of the population. Indeed, a growing number of households that have previously been comfortable are struggling to afford the basics to live and being forced to access the fastest growing banks in the uk – food banks!
More than one in five of the UK population are living in poverty and one in four have no savings at all. To compound problems, the fact is, it’s really expensive to be poor, the less you have, the more things seem to cost. Unfortunately, the poor are more likely to lack access to stable credit, or even a bank account. It can result in being forced into high-interest short term loans just to make ends meet, or living in a home with a more costly prepayment energy meter.
Not having a bank account makes it far more difficult to access essentials such as insurance, broadband or access discounts online. The fact that the poor pay more for essential goods and services is known as the poverty premium, a term first coined in the 1960s.
A key step towards eradicating poverty is financial inclusion or, better yet, financial inclusivity. To achieve financial inclusivity we need people to be financially literate, for women to be included in the financial system with control of their own money, and for those who are traditionally unbanked to have banking options made available to them. Of course, there is a temptation to settle for banking ‘lite’ products but with technology reducing the cost of running banking products there is no reason banks cannot offer first class banking products to everyone.
Delivering financial inclusivity through first class banking products.
Happily, financial institutions are becoming increasingly aware of the need to offer banking products to people who have been traditionally excluded. For years it was impossible to get a bank account without an address, this created a barrier to people accessing the financial products and services needed to get their lives back on track after finding themselves in financial difficulty. Of course, there is a temptation to settle for banking ‘lite’ products with minimal functionality for traditionally excluded customers, but with fintech reducing the cost of running banking products there is no reason banks cannot offer first class banking products to everyone, to deliver genuine financial inclusivity.
A lack of financial literacy can affect all ages and all socioeconomic levels, and it can lead to poor financial choices, with people becoming victims of predatory lending, fraud and high interest rates, resulting in bad credit or bankruptcy. Research completed by the CBI observed that Financial literacy in the UK falls short of rates observed elsewhere in the Organisation for Economic Co-operation and Development (OECD), with the UK ranking 15th of 29 OECD countries with 67% of adults being assessed as financially literate. However it noted that prioritising financial education could add nearly £7 billion to the UK economy each year.
Research also shows that a majority of children and young people say they find financial education useful so there is an appetite for increased provision of this learning in schools. But for those for whom school is a distant memory, there is also a need for financial institutions to play their part in providing financial education and to provide feature rich banking products that make it easier for customers to implement those learnings.
The power of financial inclusivity to deliver change
The Financial Services sector Fintech has the power to have a huge positive impact on individuals, their communities and the wider economy. Through provision of first class banking services and products to customers, financial institutions empower their customers to take control of their future. Now more than ever, fintech makes it possible to create product offerings to make it easier for customers to harness the power of their money (no matter how much or little they have) to maximise its impact.
With better banking products comes greater functionality, for example provision of wallets within accounts allows customers to silo bill money away from discretionary spending or other savings. This makes it easier for customers to manage their money and to build savings. Better money management makes it more likely that the customer can access affordable credit rather than high interest emergency payday loans, provide the flexibility to make timely purchases when discounts are available or simply have access to a wider range of options online for purchasing insurance, transport or other essentials. Better money management affords customers choice – In the words of the late great Vivienne Westwood ‘Buy Less, Choose Well, Make it Last’. Both access to credit and the ability to save make it easier to make these types of choices. Most of us who care about our impact will choose quality, ethically sourced products, rather than cheap disposable fashions. Of course, not everyone can afford Vivien Westwood but the point stands. First class banking products make it easier for people to manage their money and have choices.
Better yet, first class banking products can offer features that allow customers to take even greater control over the impact of their spending or saving choices. Feature rich products can incentivise savings through bonus payments, or provide loyalty programmes that may offer discounts, cashback or cash donations to charities. Customers can also receive reports that allow them to see the carbon footprint of their purchases to enable them to either change their purchasing habits or offset their activities through carbon offsetting.
Delivering positive change – one transaction at a time
With access to first class banking products and services, people not only have the ability to take control of their own financial circumstances, they also have the power to make a real difference to their community and the environment. This is the real power of financial inclusivity; to reduce poverty and deliver positive change – one transaction at a time.