The Financial Inclusion and Markets Centre (FIMC) has published a set of proposals to contribute to the Government’s National Financial Inclusion Strategy. The proposals are designed to protect vulnerable consumers and promote financial inclusion and resilience. The proposals can be found here: NFIS strategy FIMC proposals 0425
The paper emphasises that, while we have made progress on some areas of financial inclusion, we have made little or no progress in other key areas. A total of 14 million people have less than £100 in savings.[1] Millions struggle with debt, and can’t afford to purchase or are denied access to the financial products and services they need. Others face adverse pricing practices when using commercial financial services. The key data on exclusion summarised in the paper suggests that what we are seeing goes beyond market exclusion and is arguably systemic market discrimination.[2]
The lack of progress has left millions vulnerable to financial shocks and unfair market practices. We cannot miss the opportunity provided by the Financial Inclusion Strategy. There is no time to lose. We cannot afford to wait for the wheels of policymaking to turn slowly.
We know which groups of consumers are excluded and vulnerable to financial shocks and markets practices, and why. It is time for policymakers and regulators to fix broken markets, not expect consumers to conform to the demands and expectations of the market. It is time to turn good ideas into action so they reach households the market cannot or will not serve.
We urge the Financial Inclusion Committee to prioritise the most financially vulnerable and those most affected by exclusion. Black and minoritised ethnic households, people with a disability, single parents and carers (mainly women), and people living in the most deprived areas of the UK are significantly more likely to be excluded from financial services, or disadvantaged owing to the way the market functions. Millions are victims of economic abuse and/or coerced debt yet are penalised by the market. Mental health issues can exacerbate the harm caused by economic and market factors.
In terms of priority financial needs, solutions are needed to: support people in immediate financial difficulty and experiencing economic abuse/coerced debt; help people repair their finances; build savings and financial resilience; ensure the most financially vulnerable groups can access cash; expand access to fair and affordable credit; and provide access to fair and affordable basic insurance.
These solutions should be underpinned by expanded access to non-profit debt and money advice, targeted government policies and much tougher regulation to address exclusionary practices by firms, and greater transparency on the financial inclusion performance of financial institutions.
The extent of exclusion experienced by groups with protected characteristics warrants an investigation into potential systemic discrimination in financial services. We call on the FCA to investigate whether the level of exclusion can be explained by income disparities between specific consumer populations, the application of other conventional risk factors by the market, or is due to other systemic factors.
The FCA should also determine whether conventional risk factors are fit for purpose, are a fair reflection of the risk inherent in providing financial services to excluded groups, and ‘justify’ the risk premium included in the cost of products. Note that even if any investigation concluded the level of exclusion was ‘justified’ by risk factors, this would not remove the need for action. It would reinforce the fact that the market operating ‘rationally’ is unable to meet the needs of significant numbers of consumers and that major interventions are needed to meet their core financial needs.
The Government should give the FCA more product regulation powers and the FCA should make greater use of the Consumer Duty to ensure financial products and services are affordable, fair, and inclusive. The FCA needs to do much more to ensure firms monitor whether vulnerable consumers are getting the right outcomes and are being sold the right products and services.
Some of those priority needs could be addressed relatively quickly. We hope the Committee doesn’t become a forum for yet more discussion, or calls for yet more research into who is excluded. The Committee should not be distracted by trying to define ‘problem statements’ or developing theories of change. We urge the Committee, the Government, regulators, and civil society to focus on implementing interventions and solutions.
The sooner the Government and FCA accepts that there are millions of consumers the market cannot or will not serve and structural interventions are needed, the better. Sustainable inclusion needs regulatory reform, structural interventions, and support for alternatives to market provision.
For those consumers the market cannot or will not serve, there are only two realistic options. Either government mandates that the market provides access to core financial products and services or it increases support for alternatives to market based provision.
There are many good alternative options available so there is no need to reinvent the ‘solutions wheel’. What needs further policy work is establishing how to make sure solutions reach underserved households. Good ideas are not much use if they sit on the shelf. We need to get the right ideas, to the right people, at the right time, via the right channels. The Committee, the Government, and civil society should prioritise determining how best to target effective solutions where they are most needed. An effective data strategy is needed to ensure interventions and solutions reach households.
Just as important as doing the right things, is avoiding the wrong solutions. Weakening consumer protection to encourage the market to sell products and services to more consumers, or greater financialisation of social issues, are not sustainable long term solutions. History tells us that relying on market led initiatives or hoping that AI/tech solutions will encourage the market to deliver is not a realistic approach. Addressing exclusion and discrimination needs policy and regulatory interventions to correct market behaviour and fix broken markets.
[1] One in six UK adults have no savings | Money and Pensions Service
[2] Note we are not claiming that firms are consciously discriminating against certain groups in society with protected characteristics. Rather, we are referring to the way the organising principle of the market clearly disadvantages certain groups. The system is not set up to meet their needs.