The ‘unbanked’ deserve as much attention as the ‘debanked’

The writer is chief executive of Fair4All Finance and a previous CEO of Grant Thornton UK

It is welcome that a spotlight is being shone on exclusion from vital financial services. But the recent furore over Coutts’ treatment of Nigel Farage must also focus minds on the needs of those in financially vulnerable circumstances, even though their individual cases do not command newspaper headlines. The scale of their problems dwarfs the “debanked” in more financially privileged situations.

There are 17.5mn people in the UK with challenging personal finances, for whom lack of access to fair and affordable financial products and services can be a trap that keeps them in a vulnerable position. And far too many end up caught. We know that if people have access to the right products and services when they need help, it can provide them with both a safety net and a stepping stone to financial resilience — enabling them to participate fully in society and contribute to a prosperous economy.

The problem arises because financial services are largely designed to serve people with predictable lives and incomes, yet this is not the reality for many in the UK today. With shareholders to answer to, large financial institutions focus on the customers and products that deliver the best return, not on access. These factors contribute to a situation that leaves many simply unable to obtain the products they need.

The action taken by government to require provision of no-fee, no-overdraft basic bank accounts recognised this market failure. As of last year, the nine designated banks had more than 7mn basic bank accounts open. But more can be done. There are still 1.1mn people who are unbanked and over the year to June 2022 more than 90,000 applicants for a basic bank account were refused.

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HSBC has shown what is possible; its innovative work on providing bank accounts for people with no fixed abode resulted in no one who applied for a basic bank account with them being refused. Nationwide achieved a higher market share of basic bank accounts (15 per cent) than their current account market share (10 per cent).

Affordable credit is another example of market failure. For the 14mn Britons with less than £100 in savings, access to small amounts of unsecured credit is vital to managing life’s ups and downs. Banks rarely provide this service. With the costs of providing a £5,000 loan being little different from providing a £500 loan — alongside the additional checks to ensure someone can afford to borrow, the regulatory capital requirements and reputational concerns over lending in the “subprime” space — one can understand why. While there are some great community finance providers and credit unions serving excluded customers, they alone cannot fill the gap in provision: an estimated 8mn or more adults are unable to access small amounts of unsecured credit. 

Some will say that saving up to cover unexpected bills or necessary items is better than borrowing. Ideally, supporting everyone to build a savings buffer is absolutely right. But life throws up the unexpected, which is when access to decent choices becomes important. It makes more economic sense for people on low incomes to borrow for some items such as white goods than it does to scrimp and save and go without essentials for months or years — the recurrent time and money spent on trips to the launderette, for example, outweigh the costs of borrowing to buy a family washing machine. 

We know other countries have mechanisms in place to ensure that everyone has access to these vital financial services. We need to level the playing field. Financial exclusion is a massive drag on growth and opportunity, and we are missing the real prize if we only focus on a few high-profile cases, ignoring the millions of others locked out of the system.