June 7, 2022
In 2021 UK fintech investment reached an eye-watering $37.3 billion, dramatically increasing from the year prior. With fintech innovations launching almost daily, it’s clear that the fintech industry is the one to watch. As the sector grows, you may have increasingly heard mention of the phrase “financial inclusion”. As many seek to engage with ESG investing, while others strive for a more sustainable means of managing finances, there remains much to be done to make finance truly equitable.
As financial services have moved into the digital realm, financial products have been made more accessible to a vast number of users globally. Fintechs, and the solutions they develop, are key to building financial inclusion around the world. However, going digital is not a universal solution, with digital exclusion impacting significant proportions of the world’s populations, including the UK…
“Digital exclusion” refers to a person who is unable to or has difficulty accessing digital services. It could be caused by a lack of digital skills, access to the internet or accessibility issues. According to a research project carried out by the Cambridge Centre for Housing and Planning Research, digital exclusion is not just a generational issue and is more common than you might think. The main barriers to access are vulnerabilities (e.g. disability), digital literacy, affordability of devices and access to the internet.
In its December 2021 report, the UK government Department for Work & Pensions highlighted the importance of cash, access to bank branches and fee-free basic bank accounts and services, in particular those offered by credit unions. The report marked these options as fundamental to maintaining financial inclusion in the UK, preventing people from becoming deprived of financial services as a result of digital exclusion.
The fintech sector has an important role to play here, from providing more affordable and accessible banking services through educational tools to applying technology to support the use of digital financial products (for example voice recognition). In this day and age, putting people first should be at the core of every financial institution’s business and today’s fintechs must make sure they cater to older generations, neurodiverse individuals and those struggling with vision or hearing loss.
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The FCA’s Guidance for Firms on the Fair Treatment of Vulnerable Customers issued in February 2021 has made “putting people first” mandatory. This guidance requires retail firms to understand the needs of their target customer base and ensure their staff are appropriately trained to recognise and meet the needs of vulnerable customers. This obligation extends to responding to customer needs through product design and customer service solutions. Tech solutions help achieve these outcomes, for example, in-app voice recognition and text-to-speech functions can enable visually impaired customers to make the most of online banking.
For some neurodiverse customers, even Monzo’s plain language, and short and sweet T&Cs can be too much. To truly understand the legal terms, disclaimers or warnings, neurodiverse customers often appreciate video and audio formats, or simply a chat with a human. Now and into the future, we should be seeing more and more interesting solutions implementing accessibility requirements into product design, including mobile app interfaces.
While the demand for cash diminishes, legislative and regulatory measures are required to secure access to cash for those not using digital banking and payments methods. With that in mind, recent legislative changes introducing cashback without a purchase now enable people to access cash at shops without having to buy anything. Link, the cash machine network, has already launched its Cashback Without Purchase in over 1,000 locations, allowing consumers to withdraw up to £50 or check balances for free. Link has also made commitments to maintain its ATMs with a broad geographic spread, making note of remote and deprived areas.
To protect people from financial exclusion and to counteract the commercial pressures on banks to close branches, the FCA has also issued guidance requiring banks to think carefully about the impact of planned closures. Whether in response to the FCA guidance or the pressures from consumer groups (including Which?), several major UK banks have agreed to create shared banking hubs, set to open in 2022. The UK government has also recognised the key role credit unions play in this market and is now considering extending the range of products and services credit unions can offer.
This could bring some very interesting developments. Credit unions are known for their deep understanding of customer needs and their “natural” ability to provide highly personalised products. It would seem credit unions are perfectly placed to deliver the highly desirable combination of an immersive digital and branch experience, with a community feel and highly flexible and tailored products.
The increasing number of financial products and services can be a double-edged sword, exposing a growing number of people to exploitation. Many are at risk of making bad decisions with significant long-term effects and resulting debt. The most at risk are those without the knowledge needed to engage with complex or novel financial products. This means that despite the footnote “capital may be at risk”, many people don’t fully understand what they’re putting on the line. It’s quickly become clear that financial education needs to go hand-in-hand with the boom in the consumer financial services market.
The benefits of sound financial education go far beyond the protection of vulnerable users; it has been shown that financial education increases social mobility and improves financial wellbeing for individuals and communities. The Financial Times has recognised the need for urgent action and has recently set up its first charity: Financial Literacy & Inclusion Campaign (Flic). Flic’s mission is to “promote financial literacy where it is needed most to have significant, sustainable societal impact”. The charity will be advancing its mission by creating high-quality educational content, working at a grassroots level with groups identified as the most vulnerable, while lobbying at the highest governmental levels at the same time. Initiatives like this are invaluable, but there is a lot that financial services firms can achieve on the ground.
Fintechs are uniquely positioned to advance the financial literacy agenda, having direct engagement with their consumers. It is in the interest of the sector to educate users on the growing number of financial products available. Many already see the value educational elements bring to their product portfolio, resulting in greater customer loyalty and retention. Freetrade, the investment platform on a mission to get everyone investing with over 1.2 million UK users, recognises the importance of empowering its users with knowledge. Users of the app can access an array of support, from educational materials to step-by-step guides that help them in their investment journey.
Not only that, but financial products developed specifically for educational purposes are growing in popularity. For example, Gohenry, a hugely popular app and pre-paid debit card in the UK has reached over 2 million users. It is designed as a fun pocket-money management tool, while at the same time delivering a broad range of learning opportunities for kids, from the basics of money to learning about budgeting and savings, to learning about credit and investments. Open finance will open the door to highly personalised financial educational products such as these, which, if combined with machine learning and AI, could provide users with very powerful learning tools.
The COVID-19 pandemic not only made us work from home, shop online, and bank digitally, but it has also allowed many to put funds aside for a rainy day. People began to contemplate “what if” and many decided to create a financial buffer as extra comfort in uncertain times. The boom in BNPL has also revived the discussion around responsible consumer lending, the environmental impact of “fast fashion” and who should be responsible for consumer education. Against this backdrop, and despite low-interest rates, savings products and savings apps are growing in popularity. Emerging technologies, such as sweeping, are going to make it easier for us to save. These technologies help make automatic transfers of surplus funds to savings accounts to build up savings, or even move funds between savings accounts to make the most of the best interest rates on offer.
Millennials and Gen Z are the most eager and trusting users of mobile-only banking. This could be because they are digital natives, having grown up with this technology, but brands reflecting their values plays an important part. Younger generations are more socially and environmentally focused and they expect the products and services they use to align with their values. These generations are driving socially and environmentally responsible investing and banking with the reassurance that their funds are not used to support “undesirable” lending or investments. For example CIRCA5000, a Liverpool-based impact investment app, allows users to invest in environmental and social impact funds. Another example is Triodos bank in the UK, whose mission is to “help create a society that protects and promotes quality of life and human dignity for all” or Daylight bank in the US, which rewards the LGBTQ+ community for spending in line with their values.
Following on from the UN COP26 in Glasgow in November 2021 and in response to an increase in customer demands, we should expect more transparency on how our funds are spent by our banks. It seems Standard Chartered bank is already ahead of the curve. Its Shoal platform, powered by Starling Bank’s BaaS platform, will offer customers an option to invest in renewable energy, clean water and community development. Reports indicate that Shoal will also be integrated into Starling Bank’s app.
Major concerns about climate change are no longer reserved to younger generations; customers, investors and employees (to name a few) are starting to put pressure on the fintech industry to take an official stance and show their ESG credentials.
From ramping up financial education to tackling accessibility issues, one thing is clear: the stratospheric rise of fintech will go hand-in-hand with a more equitable future.
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