The A4e Blog: The underbanked and the unbanked ~ Debt Managements and Consolidation

My work on developing new approaches to financial services and products for people on low incomes, often highly indebted, started in 2005. One of the high street banks put up a sign for a week in their local bank offering every customer who came in £5 - simply for coming into the bank. After a week, no-one had taken up the offer – from all of the footfall outside, not one person had sufficient confidence in the offer that there would not be a ‘catch’.

Accenture have recently released a report on the continuing lack of confidence that consumers have in financial institutions. Customers are saying that their satisfaction with services and willingness to recommend their bank is reducing, whilst complaints are on the increase. A lot of media coverage links this to the banking crisis but there is a deeper malaise amongst customers.The consumer groups I am most interested in are the underbanked and the unbanked. Surveys like this talk to people with bank accounts – what about the millions people who do not have access to relevant products and services? If existing customers feel like this, imagine what it feels like if you do not have an account, or at best, a basic bank account.If you are one of those people who have fallen out of the bottom of the banks’ services or have not taken up the option of the limited functionality of a basic bank account, what level of confidence do you have in the financial services sector? The growth of high street lenders and cheque cashing businesses, pawn brokers and internet based high cost short term credit suppliers, points to a more fundamental problem.It’s not just that the trust and confidence of consumers gets eroded, but that the relevance of the products and services to consumer need continues to be mismatched. Many people cannot access the cost savings offered by direct debits due to the inconsistent frequency of their income. Short term, high cost lending products are being developed to address consumer demand. But all of the services revolve around supplying the credit requirements – helping fuel a vicious cycle of dependency on debt. Mainstream financial providers do not compete with door-to-door lenders or pawn brokers so there is nowhere else for these consumers to go. More transparent and lower cost short term credit is needed. With over £1 billion of government spend in this area – on crisis loans and ‘social fund’ – there is much reform required in public supply as well as in the private sector supply of finance. More importantly, alongside these current account products, bill payments and savings products, we need credit and enhanced financial capability support to help consumers become more informed. Ability to exercise a choice will only work where there is a more mature market in the availability of appropriate products and services. It is easy to criticize the supply market in financial services – we need some bold moves in creating new scalable products and services. Stepping into this difficult gap in supply is risky and hard. It requires integrity and an ability to swiftly iterate services and products that support consumers in financial capability as well as appropriately responding to their needs. In reality I think there needs to be a collaboration that can be a catalyst for market change at scale. Banks, CDFIs, credit unions, door to door lenders, pawn brokers – there is no ‘perfect’ solution, so new ideas and solutions are required.Creating a product suite across current accounts, bill payments, credit services, savings, pensions and other financial products needs radical approaches and pricing. The consumer must be involved in the design of services – not a passive end user with no choice. Too often there is a presumption that the financial community ‘know’ what is needed. I do not believe this is the case. A while back I surveyed two estates on the most important financial product they wanted – I expected short term loans, maybe pensions? The overwhelming first choice was pet insurance. A customer having to pay £30 to cash a £100 cheque every month may well not baulk at the idea of a £5 monthly fee for a service that includes current account, bill payments and access to expertise to structure the appropriate products – quite the opposite from the basic bank account model. Especially if they can use that to reduce the utility payments they have – by using a direct debit – putting £200 back into their annual income. Net they are £500 up on the year. Understanding and changing – for the better – consumer behavior in financial services for low income people is hard. However, there is too little attention on holistic services and products and often too much of an emotive debate on ‘who’ can provide the best solution and regulation. In South Africa, where technology is much better utilized to create affordable and transparent products for people on low incomes, regulation to tackle unscrupulous lenders had the perverse impact of making the best suppliers look less transparent. This is a nettle we must grasp as a society. Low income consumers should not pay the most for their financial services and products. Our financial providers must offer more transparent and affordable products and services. New suppliers will be needed, more competition and a plural market. Too much talk, too much research; the problem is here and growing but with a little bit of thinking outside the box we can provide an attractive solution now - meeting many of the needs and really change banking in the UK.
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Wednesday 11th August 2010

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Monday 2nd August 2010

Mortgage broker ordered to repay £1.5m of client money used to pay off debts
Wednesday 14th July 2010

Barclays lifts lid on banking write-offs
Wednesday 20th February 2008

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