Technology is often seen as the elite tool for tech-savvy people, but financial inclusion is underpinned by technology. And the field is more fertile than ever.
For the computer-literate armed with smartphones, financial services are right there at our fingertips. For those without the means to access mobile-only banking and online bill payment services, life is tougher. Especially now, while the world is in and out of Covid-19 lockdown and digital services gather pace. However, more vulnerable consumers – who find it difficult to manage their finances – could benefit from the global environment coming to terms with new models around essential services.
Over the last few years, switching services has become easier. Statista cites that as many as 100,000 people in the UK switch from their main current account provider every month. According to this chart, things don’t look so rosy for some of the biggest names in banking. And Ofcom recently announced that mobile phone companies will be banned from selling locked phones, all in the name of treating customers fairly. Yet, despite being easier than ever to jump from one provider to the next – whether utilities or financial services – 1.7 billion adults remain unbanked (without a bank account).
Is the underlying theme here that advancements in technology are leaving people behind? Actually it’s complicated, with lack of trust as big a reason as any for being unbanked. If you need another reason, it’s because low-income families often struggle to meet minimum financial requirements to open an account in the first place. Where do we start to fix this?
Part of the reason there are so many unbanked people around the world is because of regulation. In some regions, lack of stringent regulation has led to bank-driven models that inevitably leave people behind. And these are often vulnerable people who need better financial services to pay for essential services. When regulation changes, things tend to catch up. You could even argue that in some cases, regulators have been coerced into action by fintech startups over the last five years, adapting to meet consumer demand for better, fairer and more transparent models.
Yet, the success of digital entrants into the market has been driven by active consumers; those who act on the desire to be treated fairly. Many people aren’t active consumers because they lack the means to be an active consumer, and these people need more help, especially with their finances.
We refer to them as vulnerable consumers because they struggle with access to basic financial services. They may find it hard to get a loan or open an account, and they will struggle to repay debt. In a nutshell, they find it difficult to manage their financial situation. These consumers may be vulnerable by no fault of their own, but things are changing so that the playing field is level and financial inclusion can be achieved by more people than ever before. And technology, the seemingly inherent machine of inevitable progress and perceived exclusion, may be the surprise liberator.
Mobile technology for the unbanked
Technology will not solve every problem, but the tools we create using technology will enable us to manage the many issues around financial inclusion better. And current FIs can do this now. Products and services that make it difficult for vulnerable customers to access or understand can be redesigned with fairness and inclusion in mind. Regulators should follow suit in landscaping a financial environment that empowers vulnerable customers to self-manage loans, repayments, debt, and so on.
The proof of how technology can provide improved access for vulnerable customers is in the story of M-Pesa, wonderfully described in this video by Vodafone’s Michael Joseph. And it’s in the stories of those who followed M-Pesa’s example in regions where underbanked people need access to services that help them manage their financial lives. And while it’s easy to pick examples such as China, India, Pakistan and Nigeria (to name just a handful) as regions in need of solutions to help those without adequate access to services, the problem of being unbanked is right here in the UK too.
HM Treasury recently published its Financial Inclusion Report for 2019-20. It outlines the benefits of the convenience, security and speed of digital banking, and underlines that many people still need access to over-the-counter banking services. Covid-19 has helped accelerate digital services, but not for everybody. This is why the UK government is supporting schemes such as the Affordable Credit Challenge and the Credit Union Prize Saver, and has brought forward legislation to “allow credit unions to offer a wider range of products and services to their members”.
Strategic Fintech Review
But the key to enabling universal access to financially inclusive products and services is by not leaving vulnerable people behind. In fact, it’s about not leaving anyone behind. To this end, we need to ensure technology is being used to progress financial services in a way that covers more bases than simply dressing up traditional services. The government’s Strategic Fintech Review should ensure this happens and that the UK remains at the forefront of financial technology, while also helping our financially vulnerable citizens keep up with the progress of change.
So while we may, as computer-literate people, understand how our smartphones help us manage our money better, we should also encourage others to do the same. Large swathes of unbanked people around the world are using mobile phones to lift themselves out of exclusion, and there’s no reason we can’t do the same here in the UK. The regulators are helping, the banks are doing their bit, the government appears suitably enthused, and technology companies such as ourselves are operating on the front lines of what’s achievable.
Technology isn’t necessarily leaving people behind. People leave people behind. The optimistic reality is that the unbanked can be massively helped by technology, so let’s get on with it.
Photo by August de Richelieu