Capital Markets Corporate

June 14, 2018

Financial inclusion: reputational remedy or commercial opportunity?


By Fran Hart, Account Manager, Financial Services

Every year, 1 in 4 of us experience a mental health condition – that’s 16.4 million Britons, from all walks of life. Mental illness has far-reaching implications, with one of the most common and significant ramifications being individuals’ financial wellbeing often suffering as a result.

For example, those experiencing mental illness are three times as likely to have debt issues as navigating complex products, payments and language becomes an overwhelming ask. Unfortunately, in many cases this scenario can lead to additional stress while others feel they have no option but to turn to expensive payment options such as high-cost credit – both continuing the vicious cycle of worsening financial and mental health.

But whose responsibility is it to break this cycle?

Many would argue the answer lies in government policy, regulation and the education system. Many others would also misdirect the blame at the individuals themselves. However, while few of us would disagree that the government has a role to play in improving the financial health of the UK, the financial services industry can also be highly influential.

One of the key areas it can help address is the ‘poverty premium’. This is a phenomenon where those with less money find themselves paying more for basic services, and/or where the system seems disproportionately in favour of those with greater financial means.

As a result, people in financial difficulty often pay more for the same products or services than those who are better off, through high-cost credit, meter systems for utilities or the inability to access the cheapest deals. Additionally, services such as free current accounts are funded by the overdraft fees and charges of those in debt.

Unfortunately, the ‘poverty premium’ further widens the gulf between the less and more financially fortunate. A cultural shift is needed across the industry to help tackle this issue and to level the playing field – but where is the commercial incentive?

Reputational remedy

Firstly, post-financial crisis, it would be an understatement to say that the financial services industry has faced something of an image problem. Many people mistrust banks and other large institutions, particularly those people who are most vulnerable or who have been negatively affected in the past.

Some progress has been made, but there is significant room for further reputational rehabilitation – adopting measures to tackle this pressing societal issue could be part of the antidote.

If done in a genuine way – critically, one that doesn’t read as a simple CSR tick-box – companies can make a real difference both to their own image but also to the public. A standout example is Barclays’ ‘Digital Eagles’ and ‘Life Skills’ initiatives, that aim to improve access to digital banking for older people and help create better career prospects for those from disadvantaged backgrounds. Done with intent and tangible output (i.e. actions speak louder than words), this is clearly much more than a CSR initiative and will have real benefits for those involved.

Financial empowerment

Secondly, empowering people to be financially astute and supporting them out of financial trouble opens up a pool of millions of potential new customers. Low-cost measures such as simplifying terminology in communications or taking greater care to explain complex concepts such as pensions and mortgages could go a long way in making financial wellness seem more achievable for a greater number of people.

Improving financial inclusion by bringing more people into the formal economy and adding them as customers may be more expensive in the short term than targeting more affluent customers, but in the medium to long term there is no reason this approach cannot deliver commercial benefits too.

Although relating to different markets and circumstances, one only has to consider the success of some microfinance providers in emerging markets to see the transformational impact the provision of basic financial services to those traditionally with limited access can have.

Ultimately, there is no silver bullet and responsibility does not lie with just one set of stakeholders. Alongside combating the growing scourge of mental health issues in the UK, money management should be an essential part of our education, we need to improve our emotional understanding of money and we need to cultivate a more inclusive and accessible financial services industry that works for everyone.