Fintech: the end of financial exclusion in the UK?
Fintech is a buzzword which has been popular in financial media for over a decade now. Financial Technology (known as fintech) is revolutionising the way in which we make payments, monitor our own finances, and invest our money. Fintech is also revolutionising the economies of developing countries; the launch of M-Pesa in Kenya, for example, has radically transformed the proportion of people who have access to banking in the country.
However, there has been less focus on what fintech can do to help solve the obstinate problem of financial exclusion in the UK. Financial exclusion means not having access to financial services, most commonly judged by having a bank account (which acts as a doorway to products such as insurance, credit and mortgages). Currently, over a million adults living in the UK still do not have a bank account. A new report by the Centre for Financial Innovation (CSFI), explored the contribution fintech could have on changing this.
The CSFI defines financial inclusion as every individual having access to “fit-for-purpose financial services” which “reflect the growing complexity of personal circumstances and meet people’s changing needs over a lifetime”. There are two main fintech models which are being considered as a gateway to providing the tools for financial inclusion – Open Banking and Platform Banking.
Monzo, Tandem and Starling are all key disrupters in the savings market and operate through an Open Banking model. Through secure data sharing with banks and third parties, Open Banking creates a single tool (a digital app) to manage accounts with multiple providers, in order for individuals to take control of managing their finances. The simplest example of this is a budgeting app which sends through overdraft alerts. The UK Competition and Markets Authority has set a deadline of 2018 for all banks to implement Open Banking to accelerate uptake of this technology. Similarly, Platform Banking allows third parties access to use personal data to glean insights on your financial characteristics, and from there offer financial advice on which products and services would best suit you.
But what is this doing to end financial exclusion? Commentators like the CSFI say giving trusted second and third parties real-time access to individuals’ financial data will allow individuals to source products that best suit their needs, and offers real-time financial advice which can act as a buffer to protect them from bad decision making.
Fintech alone will not remove the problem of financial exclusion; it is a systematic problem which impacts some of the most vulnerable people in the UK, and for fintech to make a difference it would ultimately require this group of people to have access to the technology. However, the tools fintech can offer are making taking control of your finances more accessible to many people.