This means two million people are financially excluded or have limited access to traditional banking services.
Younger people are a predominant demographic: 8 per cent of 18-19 year olds have no access to a bank account, and nor do 4 per cent of 20-24 year olds, or 3 per cent of those aged 25-29.
And that’s before considering the estimated 8 million more people who have a bank account but either don’t use it or feel obligated to supplement it with additional financial services (like payday loans or alternative credit). Or the 8.8 million who are over indebted. Or the 13 million who would struggle to support themselves for a single month if they experienced a 25% cut in income.
Described as ‘unbanked’ or ‘underbanked’ – phrases more commonly associated with developing nations rather than the UK – the people who fall into these categories sit outside mainstream financial systems. They are more likely to have poor financial health. And given the technology at our fingertips, it seems that this should be the case.
However, as the Financial Inclusion Commission highlighted, part of the issue is with the banks themselves, with more than half of the unbanked saying ‘they once had [an account], and don’t want to repeat the experience’.
To say that traditional banks have not always put their customers first isn’t a new insight. Who hasn’t had an experience with their bank that’s barely tolerable?
Because of the lack of competition in the market, the poor service, the cumbersome and complicated ways we’re forced to accommodate our bank within our lives, many of us arguably sit in an ‘underbanked’ spectrum. We avoid engaging with our bank until we have to. Most of us live in the ‘lull of a semi-dysfunctional but comfortable long term relationship’ with our bank.
For other’s it’s not a choice. For those with low incomes, who are new the UK, have historically made financial blunders, have long-term disabilities, or simply have unique needs – banks can be even more unfriendly terrain.
There are motions for change. MasterCard drive conversation at the Symposium for Financial Inclusion. In the US there’s a growing number of Responsible Banking Ordinances. In the UK, the Financial Inclusion Commission called for action on a public level. This included demands for greater financial education in school curricula and provision of ‘objective and understandable advice on credit, debt, savings, insurance and pensions provided in a way that is accessible’. The Commission also emphasises that the route to inclusion will increasingly be digital and mobile.
This is why fintech startups and new technology-based banks play such a crucial role in shaping the future.
As McKinsey pointed out in their recent report on the impact of digital finance in emerging markets, financially including 1.6 billion more people could add $3.7 trillion dollars to the GDP of emerging markets economies, create 95 million more jobs, and open up $2.1 trillion in credit to individuals and MSMEs.