Launched on the 24th May by the Financial Conduct Authority, the Paper outlines the impact of financial exclusion on consumers and describes the types of access issues that finance institutions need to consider. It is particularly timely with a rapid transition to digital while millions still lack basic IT skills or access to the internet and with the roll out of Universal Credit and claimants needing appropriate bank accounts to help them manage monthly, direct payments. Access is also a key piece of the financial capability puzzle as, without it, even the most financially literate people will still be prevented from managing their money better.
At the launch event, money saving expert Martin Lewis described the ongoing exclusion of vulnerable people from services as “a civil rights issue”. Jonquil Lowe agrees: “Martin is right. Whether you are a supporter of free-market economies or not, if you live in one, you cannot escape from the pressure to be financially self-sufficient.” And, she says, you need to have access to services to achieve that.
The Paper itself says consumers should not be “placed in a ‘Catch 22’ where they are expected to take financial responsibility for themselves but are denied the means to do so.” It is a central theme for the report but acknowledges “consumers do not generally have an absolute right to access products and services, nor firms a duty to supply them”.
In January 2015, at a financial inclusion event in the City, the Archbishop of Canterbury, Justin Welby, likened needing a bank account to needing roads and electricity supply. He argued that if they weren’t that important, the government would not have bailed so many of them out. “Banks benefit from society,’ he said, ‘[including everyone] is a responsibility you cannot avoid now.” (See QIPN report here)
Martin Coppack, another of the FCA’s Paper’s authors is upbeat: “It was great to see the level of interest on launch day. The attendance of speakers including Harriett Baldwin, Economic Secretary to the Treasury, George Kerevan MP, Treasury Select Committee and Martin Lewis shows the recognition from senior stakeholders of the importance of this issue and the impact financial exclusion has on consumers’ lives.
“A key message from the paper is that these issues are by no means impossible to solve but this will require communication between stakeholders. For me, the launch of the paper marked the start of a new conversation.”
Access is a complex issue. Where consumers’ and private firms’ interests are not naturally aligned, regulation is often the last resort. It takes ages to be carefully considered so it does not conflict with other interests. In the case of banking, regulation to prevent fraud and money-laundering has exacerbated exclusion with its strict rules on ID.
The Financial Conduct Authority (FCA) tells QIPN that it sees the report as “a meaningful step forward” but says: “There are a multitude of questions to consider which will require an ongoing commitment from firms, regulators, government and consumer organisations to work together.
“Financial inclusion is a vast topic and one where the actions of the regulator alone cannot possibly address all the potential issues. We want to work collaboratively to design and drive better outcomes for consumers who do not have adequate access to financial services. We have already undertaken significant work in this area.”
A lot of poor access could be addressed immediately if institutions chose to. Frontline staff in banks, for example, can sometimes take too narrow a view of what proof of identity is acceptable for fear of falling foul of legislation. Other times, lenders depend on credit reports when other evidence of good financial management, such as a perfect record of paying rent on time, might be equally useful and would open up routes to affordable credit.
“Firms should improve their practices,” says Jonquil Lowe, “and some nudging from the regulator could help. But, in other areas, such as keeping bank branches open, it has to be recognized that firms make commercial decisions and, in a free market, have the right to do so. In those types of situation, it has to be an issue for social policy. Only the government can override the free market and say we need to have an agreement or even legislation to ensure that all consumers who want to can still access these services or some acceptable alternative.”
While discussing physical access issues, banks (and government) continue to roll ahead with digital, while millions still do not have the means to engage with it. It could make access issues worse. Jonquil explains: “With the move to digital, I think the government and industry need to be much more aware of the access issues facing people who are not yet online. It's not just about getting digital skills and confidence, it's also about the cost and unpredictability of cost in terms of equipment that may need regular upgrading, broadband connections and security software that are added regular expenses, and ease of use for those with physical and mental disabilities.”
The Money Advice Service (MAS) tells QIPN: “There are many ways in which technology can make it easier for people to take control, and keep track of their finances. ‘Fintech’ products have the potential to engage people in new ways, supporting consumers to manage their money online, tracking, reporting spending and interrupting purchasing decisions in ways that would not have been possible in the past. Evidence shows that being online makes it easier to compare products and services and access the best deals. However, not everyone has the digital skills, confidence of access they need to use financial technology or search for the best deals online.”
“Improvement to levels of financial capability will not be possible without collective action from a number of different organisations, and financial institutions have a key role to play. A huge variety of organisations, including financial institutions, social enterprises, charities and public sector organisations, are already involved in the UK Financial Capability Strategy, where ease of access to financial services is one of the key components.
The FCA Paper turns up the heat on financial services but the debate will revolve around who should be responsible for ensuring vulnerable consumers can access the facilities everyone else enjoys. Their needs may not naturally fit the business premise of most institutions but expectations placed by the government upon them to take responsibility for themselves continue to rise, notably around Universal Credit. Wherever the arguments go, the consensus is financial exclusion is real and prevents consumers from taking part in the modern world we live in.
See Quids in! editor Jeff Mitchell’s blog on his take on who’s responsible for ensuring vulnerable people are no longer frozen out of services.