There has been much more conversation about financial inclusion in recent years, with politicians and experts alike flagging the damaging effects of exclusion, explains Lubaina Manji, Senior Programme Manager, Nesta Challenges. We’ve also seen good work done by the Financial Inclusion Commission, which was set up to promote the financial health of our nation and ensure that everyone is plugged into the banking system.
However, there is still much more to be done. There is more that needs to be considered and I believe it’s time to broaden the conversation. Speaking to fintechs, charities and industry bodies, there is a growing chorus of people who agree.
When people talk about financial inclusion, it seems that you always hear about, or from, credit providers who are promoting lower rates or flexible repayment terms. While it’s absolutely right that there are more affordable and flexible forms of credit available to help prevent people turning to high-cost lenders and to eradicate the ‘poverty premium’ in accessing credit, it’s also important the focus isn’t solely on more credit.
It’s time to shift the conversation from just helping people access more affordable credit to include helping them build up financial resilience enabling them to weather adverse life events, so that – where possible – they can avoid needing to turn to credit in the first place.
Financial wellbeing
In the past decade, personal finance has changed dramatically. As we move closer to a ‘cashless society’, money has become more virtual, with increasing numbers of payments being made online, and as such, it is much harder to keep track of your money. At the same time, spending has become even easier, with a plethora of products and services available at the touch of a button.
In light of these changes, there is a pressing need to move beyond just better loans and arrive at better behaviours also, so that consumers can cope with future shocks. Last year, we conducted a survey which found that nearly 15.2 million people in the UK regularly run out of money each month and 48% of them would like new tools and apps to help them manage their money. People are crying out for help and yet the incumbent financial services sector has been quite slow to respond to society’s evolving financial needs.
I believe that every person in the UK should have access to objective and understandable guidance on debt, savings and budgeting, delivered via the channel most suited to them. They should also be educated, encouraged and enabled to save, even in small or irregular amounts, to build up their resilience against financial shocks. At present, three in ten (29%) admit they don’t have a ‘rainy day’ fund set aside for emergencies and a similar percentage (30%) don’t feel confident about their financial future.
Empowering new entrants
The banking sector has traditionally held all the cards but, thanks to open banking, a raft of new fintech entrants are shaking up the market and creating more options and real value for users.
Open banking has huge potential to help people make more of their money. That’s why, in partnership with the Open Banking Implementation Entity, Nesta Challenges is currently running the Open Up 2020 Challenge to unlock the power of open banking for people across the country.
The £1.5 million challenge prize fund encourages fintech innovators to revolutionise money management using new open banking technology – whether that’s helping people save, budget better, or take control of their debt.
In November, we announced the 15 finalists of the Challenge. While the solutions have different audiences and focuses, all have one thing in common – they use open banking data to help their users better manage their financial lives. This includes gig economy workers, who are trying to manage the peaks and troughs in their finances, vulnerable people more susceptible to fraud, and millennials and Gen Zs who are trying to boost their savings, rent or even get on the property ladder.
We’ve been hearing from many of the Open Up finalists who have a strong focus on building users’ financial wellbeing that it’s time for the conversation to evolve. Olly Betts, on the team behind Tully, a digital debt service for those struggling financially, says: “The UK is no longer underbanked, its overbanked and more specifically it’s overborrowed. There are enough lenders increasing consumer debt levels – we’d like to see the discussion move to how we can help people to become debt-free and financially resilient”. Tully provides online budgeting, debt advice, and money coaching aimed at alleviating financial stress.
We’re excited to see innovative tools like Tully and the other finalists emerging, which I feel will undoubtedly help improve people’s wellbeing and financial health in the future, making them far less likely to rely on costly credit further down the line. As these new innovators begin to reach more people and we start to see more solutions like them entering the market, I believe we’ll be in a much better position to improve financial resilience in the UK. By helping people adopt better behaviours, alongside affordable forms of credit for those who need it, we’ll be well on our way to a brighter financial future for everyone.
By Lubaina Manji, Senior Programme Manager, Nesta Challenges.
