Innovation in financial services must benefit everyone
Jennifer Tankard kicks off a series of articles from members of the Community Investment Coalition explaining why it’s time for a revolution in community finance
We are seeing a revolution in the way that people use financial services. For years people have relied on a combination of cash, cheques and directs debits to manage their money, using one bank to manage current, savings and mortgage accounts and increasingly, because of bundling, taking out insurance with the same firm.
But now it seems every day there is a new innovation to improve the speed and accessibility of financial services. The British Bankers Association (BBA) this month reported that millions of customers are now using contactless cards, payment by mobile and SMS balance alerts. In 2014 the rate of adoption of digital banking has grown strongly with more than 15,000 people downloading banking apps a day.
The main high street banks are innovating to provide better services for existing customers to try to rebuild their reputation and levels of trust following the 2008 financial crisis and bail out of financial institutions by the taxpayer. These innovations are of significant benefit to consumers but only those consumers that already have a bank account. Those without bank accounts and access to affordable credit have seen and experience a different type of innovation – the rise of payday lenders. Payday lenders have transformed many high streets in poorer communities stepping in as the banks retreat, closing branches and reducing funding available for small businesses.
In the UK, around three million individuals are unbanked or under-banked and so effectively financially excluded. Access to other types of financial tools remains patchy. Some 56% of the poorest households do not have home contents insurance and the reliance by many on payday loans to get them to the end of every month is well documented. Access to basic banking facilities is an essential part of modern life as employers and government agencies move way from cash and cheques towards electronic payments. Small and micro businesses are also affected by difficulties in accessing basic affordable financial tools, often relying on easy access to branches to bank cash safely. This impacts on their sustainability and opportunity for growth.
Effective tools for savings, payments and accessing credit and insurance can help people climb out of poverty or get through a crisis or emergency without falling into debt. It can help businesses survive and avoid sliding into bankruptcy should a crisis occur.
This is why the Community Investment Coalition (CIC) is calling for every adult, household and business to have access to a basic package of fair and affordable finance tools. These should include: a transactional bank account; a savings scheme; access to affordable credit; physical access to bank branch facilities; insurance; and independent money management advice.
To achieve this, the following five steps are needed.
- A review of community finance provision across the UK to identify where communities have the potential to be well served by existing providers and where there are gaps.
- Better partnership working to create sustainable community finance partnerships across the UK.
- A review of existing affordable finance tools – what the take up is in poorer communities, whether available products are meeting demand and how these products could be offered more widely.
- Clear direction for financial regulators on the value and importance of the community finance sector and the need to regulate to encourage stability and growth.
- A significant scaling up of the community finance sector.
The UK needs a radical change in the availability of affordable financial services in poorer communities, to give everyone the financial tools they need to actively participate in the economy through employment or entrepreneurialism. You can download the community banking charter here and support it by encouraging local partners to endorse it and sign up to support its implementation.
Other articles in this series:
- Alison Seabrooke on why local action is the key to tackling financial exclusion
- Ben Hughes explains how community finance can unlock local economic growth
- Debbie Ladds reveals how Big Local areas have exposed the extent of financial exclusion
