What should Financial Inclusion look like in 2023? 

Recently I have begun to see the words ‘financial inclusion’ used more often in the media and by commercial financial services providers. This is great as it shows a higher awareness that there is a financial exclusion problem in the UK and more people are  getting involved in trying to resolve the issues. But it’s crucial to focus on the right things so ‘financial inclusion’ doesn’t just become a tick box or buzzword.  We need to ensure that by striving for financial inclusion for all we don’t leave some even further behind. 

Most organisations/policy groups focus on access to current accounts as their first step on the financial inclusion agenda and usage of bank accounts being step two. This sounds like a logical progression after getting access to an account, but as we get more into the detail of what that means we start to see where issues may lie with this strategy.  

 A nudge to digitally transact could increase financial stress 

Moneyline was an early adopter of the use of open banking in our decisioning (looking at people’s bank statements digitally) and it’s a big part of how we became more efficient and stay relevant. But we are also very aware of the limitations of using bank data in offering products for many low income households. Many of our customers use cash or PayPoint to pay for their shopping and bills so we know we cannot create an income and expenditure from the open banking data. Much of the talk about financial inclusion focuses on FinTech firms using data to create this affordability picture, so what will happen to the 5.4m people who pay mostly by cash? 

In the UK we have created a financial ecosystem that relies on data to make decisions and which is more cost efficient for organisations. Where it doesn’t work is for customers who have weekly budgets, as many cash customers do. In a time where money is so tight, managing the budget weekly rather than monthly can make a big difference. If you have a low income and you know it’s not enough to cover all your costs, do you make the choice of paying all your bills monthly and having no money left for a full week of food at the end of a month, or pay weekly and have two days each week where you might struggle a bit? Most people would go for the second option. Unfortunately, many companies only offer monthly Direct Debit and other payment options, not leaving the option to manage your finances weekly. If we are going to get people to transact more digitally we need to offer them services that work for them, not nudge them to services that work best for the organisation. 

You need to understand it to access it 

To access financial services and choose the right product you need to be able to understand it. At the moment, specifically in relation to small cash loans, there seem to be two key issues:  

Firstly, the issue of when or if we tell customers how much the product costs. How often have you seen a headline rate but then when you apply you get a completely different offer? More and more often we are seeing websites where you don’t get the price relating to the product amount and term you want until you have entered quite a bit of personal information. This is a barrier for people applying for different options to see what fits best.  You don’t want to be entering your details in too many different places, especially with new and untrusted companies. For financial inclusion to work there needs to be more transparency of the cost of the credit at the start of the journey to give people confidence to apply.  

Also, everything else about the product needs to be explained in a way that the customer will be able to understand. Customers need this information to be able to make informed decisions on whether a product is right for them. We have already talked about APR and the fact it’s not relevant for small cash loans, but with AIRs, Fixed Interest Rates and various other ways of displaying the cost its not just APR that adds to the confusion. Many people struggle with numbers, and at the moment we are making it really hard for them to make the right choices. 

Then there is the language that is often used on websites and in contracts. There is a difficult balance for organisations with this as there are legal requirements that must be met and at the same time we need to make language as simple and clear as possible. Every time I read our website I think how I can make it simpler for people to understand. We use so much jargon and complex words without even realising it. The average reading age in the UK is nine years old. That isn’t a reflection on someone’s intelligence, just that reading is not a skill that everyone uses daily. We need to make the language much simpler so people make the right decisions. Consumer Duty, the new FCA regulation, will go someway to helping this but we should want to do it to support our customers and not wait on being forced by regulation. 

Financial Inclusion is a huge topic and I have just picked out a couple of areas to focus on. We need to start segmenting the conversation, so we don’t forget a large part of society who still budget in cash and make the focus on being clear and transparent a bigger part of financial inclusion conversation.