Yes, (financial inclusion) minister?

Yes, (financial inclusion) minister?

In today’s seemingly financially connected world, where we can send money to one another via our smartphones, and manage our spending habits via apps, it’s pretty hard to believe that financial exclusion is still a reality in the UK.

Yet whilst the majority of us use online banking in our daily lives, and some of us are starting to use new technologies like voice biometrics to access our accounts, a shocking 1.7 million adults in the UK still don’t have access to financial services.

This extent of the problem was brought to light most recently in the House of Lords Financial Exclusion Committee report at the end of March. Its primary aim was to present solutions that would contribute to a future whereby the “scandal of the poorest being excluded from even basic financial services” no longer exists.

One recommendation put forward as part of this was the appointment of a Minister for Financial Inclusion.

The suggestion of having a government official dedicated to this issue is a great step forward, but to affect real change, there are a few key areas that must be addressed.

Include challengers on the advisory agenda

The reality is that banks have no financial incentive to encourage financial inclusion – and let’s face it, they are motivated solely by the opportunity to make money. With that in mind, talking only to incumbents about the issue and its challenges will create a circular problem.

Traditional banks rely on a mixture of lending and hidden fees, to the point that dependence on these revenue streams prevents them from seeking an alternative – revenue over reason.

For example, we hear all too often of people being declined current accounts if they have a bad credit rating. But why should credit even come into it if this isn’t a service that they are asking for? It shouldn’t, and this is where the banks fall down – if the consumer isn’t looking to take credit or other services from them, providing a current account is a loss making exercise. Banking is not free. It costs to provide a service. If they can’t make this cost up in hidden fees, they make no money from that customer.

Challenger banks, however, are not built on this mentality. These organisations understand the need to shake up the status quo to serve previously underserved groups. If the UK is to see a Minister dedicated to financial inclusion, this person must acknowledge that, if we are really to tackle the problem, we must challenge the existing processes and assumptions.

Financial services must be offered to customers based on what they actually require, as opposed to basing a decision on their likelihood to one day need another service – one which would just so happen to make a profit for the bank.

Sadly, if the Minister only consults the incumbents, we’re unlikely to see any movement.

Mulenga Agley, Monese: the myth of free banking is beginning to crumble

Mulenga Agley, Monese: the myth of free banking is beginning to crumble

Get a grip on “free” banking

Thankfully, the myth of free banking is beginning to crumble. It’s slowly becoming better documented that the banks make money through unexpected or hidden fees – for example, minimum deposit penalties or overdraft charges. It’s these fees that line the banks’ (greedy) pockets and send vulnerable consumers spiralling into debt. The real stinger is in the ‘unavoidable costs’, charging customers to spend money that isn’t there – if they go over their overdraft and so are unable to make a payment, for example.

Again, the incoming Minister must understand that “free” banking can no longer be an accepted industry standard because it simply doesn’t exist. After all, there’s no such thing as a free lunch. Instead, we must be promoting financial providers that are inherently transparent. Charging customer an all-inclusive monthly fee means that customers know exactly what they are getting for their money, with no risk of unexpected or hidden fees.

Be awake to and ready to stomp out “problem profiteering”

Bank greed is widely understood by many, but it’s disappointing to see that this mentality extends to national customer advice and support groups. Sadly, it’s not unheard of for challenger brands to try to forge partnerships with these advice bodies, only to be met with a “no money, no partnership” response.

These organisations are created with the sole purpose of helping consumers and guiding them to financial options that best suit them – they should be turning down potentially problem solving partnerships, if they won’t receive a “kickback” for lead referral. This is a mercenary and unwelcome approach. Until these advice bureaus start thinking with their societal hats on, and stop trying to monetise vulnerable consumers, there is no way that they can ever truly fulfil the support function that they should.

It’s pleasing to see that tackling financial exclusion is a top priority for the government. Financial exclusion will remain an issue for as long as the relevant parties are looking to profit from the problem, but the good news is that there is now a real drive to solve the problem. So long as the potential Minister keeps these issues in mind, there is the opportunity to truly help the financially underserved. With great power comes great responsibility and we look forward to supporting the government in its journey to create a fairer financial system.

By Mulenga Agley, VP of growth, Monese