Tackling financial inclusion: financial services that work for everyone

Financial inclusion is rising up the social and political agenda. In the first of a series of blogs, we look at how fintech can help democratise financial services and increase economic prosperity, particularly post-COVID.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services, regardless of their background or income.

Access to financial services is an important part of everyday life. At its most basic, a transactional account can be used for receiving income and making payments. It’s also a gateway to credit, insurance, pensions and savings products.

Tackling financial exclusion to include more people in mainstream financial services has become an objective for governments worldwide. Since 2010, more than 55 countries have made commitments to financial inclusion. And more than 60 have either launched or are developing a national strategy. Why?

Because it’s as Jim Yong Kim, group president of the World Bank Group, said on the publication of the 2018 Findex database: “Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency.”

When people are financially included, it helps improve the quality of their lives. But also, contributes to the economic wellbeing of communities and societies. 

Good progress – but still more to do on financial inclusion

According to the World Bank, around one-third of adults worldwide – 1.7 billion people – do not have a bank account.[1] That’s around 37 million adults in the EU[2]. Even in a level four country such as the UK, financial exclusion is a long way from being ‘solved’.

A House of Lords report in 2017 found that 1.7 million people in the UK did not have a bank account and 40% of the working age population in the UK had less than £100 in savings.[3]

COVID-19 has exacerbated financial stress, particularly for low-paid workers. The lowest-paid fifth of workers are three times as likely to have lost their job, been furloughed or faced cuts to their hours and pay than the highest-paid fifth of workers.[4]

This is contributing to the ‘poverty premium’, where the poor are charged more for essential utilities and services. Think: pay-as-you-go mobile phone contracts and utilities, high-cost credit and insurance.

The ‘poverty premium’, equating to approximately £1,300 a year per person, means that people are forced into a vicious circle of relying on high-cost credit and sub-optimal products, thereby exacerbating the effects of financial exclusion.

Who else is financially excluded? 

It’s not just the unbanked, those on low incomes or living in poverty who are financially excluded. Financial exclusion affects different people in different ways at different points in their lives.

It’s an elderly couple living rurally and struggling to access banking locally, who resort to doorstep lending at higher rates. It’s a cancer survivor desperate to get some respite in warmer climes who can’t find insurers willing to provide cover. Or a foreign entrepreneur who struggles to open a bank account due to prohibitive ID requirements.

Financial exclusion has multiple causes and can affect everyone from young people to the elderly. Small-to-medium businesses to those with ‘thin’ or ‘empty’ credit files. The homeless to those living through mental health issues, illness or bereavement.

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References:

[1] ‘Financial inclusion on the rise, but gaps remain, Global Findex Database shows’, World Bank press release, 19 April 2018, https://www.worldbank.org/en/news/press-release/2018/04/19/financial-inclusion-on-the-rise-but-gaps-remain-global-findex-database-shows

[2] ‘Close to 40 million EU citizens outside banking mainstream’, WSBI, banking trade association, 5 April 20216, https://www.wsbi-esbg.org/press/latest-news/Pages/Close-to-40-million-EU-citizens-outside-banking-mainstream.aspx

[3] ‘Tackling Financial Exclusion: A country that works for everyone?’, House of Lords Select Committee on Financial Exclusion, 25 March 2017, https://publications.parliament.uk/pa/ld201617/ldselect/ldfinexcl/132/132.pdf

[4] ‘Covid crisis and recovery have created a jobs rollercoaster for low-paid workers’, Resolution Foundation press release, 07 June 2021, https://www.resolutionfoundation.org/press-releases/covid-crisis-and-recovery-have-created-a-jobs-rollercoaster-for-low-paid-workers/