The power of FinTech to ‘bank the unbanked’
Payments Statistics show that around 2 million adults in the UK do not have a bank account. techUK believes that new technologies can transform this situation.
These figures are astonishing and shameful: almost 12% of the population are ‘un-banked’ or ‘under-banked’. Imagine not having a debit card; no access to the buy-now, pay later of your credit card. Most of us would be appalled. Yet according to the Financial Inclusion Commission, many of those without a bank account do not want one. They have been stung too often by overdraft fees, fees for sending a letter announcing the overdraft, unexpected charges - they are once-bitten, twice shy. And it shows: the payday lending market grew from £330 million in 2006 to £3.7 billion in 2012.
And the inability to pay electronically or to make direct debits; the recourse to high-interest loans when cash is low brings on a ‘poverty premium’ estimated at £1,300 per year. Technology can change this – and many other problems faced by those on low income. We just have to let it.
E-money has been around for a long time, but the reach of the smart phone is taking it to a new level. In the market there are two main types of app-based bank accounts. One model, such as start-up Loot, stores e-money on your smart phone via a pre-paid card, not necessarily linked to a bank account - and you can sign up in minutes. The other comes from the ‘challenger’ banks, such as Fidor, Atom and Tandem, which will offer a full range of products: current accounts, savings, loans and credit, all housed on a mobile phone or tablet. These are bank accounts like any other but operating digitally with no physical presence, allowing lower margins and lower fees. IT systems built from scratch have none of the legacy issues, which hamper traditional banks.
Their selling point is an emphasis on customer service: fees are transparent and customer involvement is a big feature: user communities share tips and ask questions to which experts respond. An additional draw is the in-built budgeting features, which track outgoings, notify users of upcoming bills and calculate funds available to spend.
Technology can do great things, but we also need regulations that allow them to flourish. The Payment Services Directive, due for implementation in 2018, will enable more players – banks and tech companies - to offer payment products and give consumers a more detailed picture of where their money goes. If real-time payments are added to this, consumer certainty will increase. Work on the open banking initiative will also allow the transfer of data with greater security and simplicity.
The technology exists and the regulatory landscape soon will, yet the habits and of structures the UK’s financial services industry are decades old. They need a strong push towards change.
The pace of change must be accelerated and techUK strongly supports calls for a national financial inclusion strategy. This could give the strong leadership required to ensure that the capabilities of technology to change lives reach all citizens. The potential of fintech can and should make financial exclusion a problem of the past.