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I care passionately about financial inclusion and, five years ago, sat on a special House of Lords committee tasked with looking at the problem. Half a decade on, there is still much more the government can do and an important role for open banking (and open finance) in ending the devastating situation facing the millions who are currently financially excluded.  

Being financially included in our society should be considered a basic human right. The cumulative impact of having to pay more for products and services if you are poor (the poverty premium), as well as being unable to access mainstream financial services – a bank branch or fair credit, for example – does physical, emotional and psychological harm to the individuals directly affected and social and economic harm to us all. What more should the government and regulators be doing? And how can open banking help solve this pernicious problem?  

As the UK faces the sharpest increase in the cost of living in a generation, many more households across the country are facing financial pressures. It is horrifying and absolutely unacceptable that those already on low incomes are affected the most, not just through having less already but through the poverty premium. 

The Financial Conduct Authority (FCA)’s latest financial lives survey found that 12.9 million UK adults have low financial resilience – 1 in 4 (24%) of all UK adults. These are people who are in financial difficulty, or who could quickly find themselves in difficulty if they suffer a financial shock, because, for example, they have little to no savings or are heavily burdened by their domestic bills or credit commitments. This result is much worse than that recorded in the FCA’s February 2020 survey. At that time, 10.7 million adults had low financial resilience. Over 2 million more people in just 2 years. A further 1.3 million people in the UK are completely unbanked.  Financial exclusion is a devastating, and it seems, growing domestic problem. 

It was timely, therefore, that Open Banking Excellence’s (OBE) recent campfire was on the topic of financial inclusion and I was delighted to host the event.  Taking an international perspective affords a slightly more optimistic view and during the campfire Paul O’Sullivan from Salesforce pointed out that: 

The consensus across an excellent lineup of speakers was that there was indeed still much to be done. I was personally pleased to hear Pooja Bhachu from Mastercard highlight the link between financial inclusion and digital inclusion during our fireside chat. Pooja reminded us all that Mastercard has committed to bringing one billion globally into the digital economy by 2025. How to address both digital and financial exclusion, and the fact that they so often go horribly hand in hand, has underpinned much of my work for a long time. 

Another important point Pooja referred to is the need for a financial inclusion duty for the financial regulator. Pooja explained that

developed with the World Economic Forum. Back in 2021 I tabled an amendment to the last Financial Services Bill that would require the FCA to have an objective to promote financial inclusion in financial services.  Sadly, that bill passed without my amendment, but we now have a new Financial Services (and Markets) bill before parliament and colleagues have added a similar amendment – that the FCA must have regard to financial inclusion in the consumer protection objective. I will be supporting that amendment when the bill comes to the Lords shortly and this time hope for a different outcome and that this important change becomes law. 

Janine Hirt, CEO of Innovate Finance, highlighted that so far open banking has made a positive impact in facilitating financial wellbeing:

As Janine said, open banking tools are also supporting debt advice, customers can access tailor-made budgets and faster loan processing, instant affordability, or identity checks. 

One example of a company in this space at the moment is Plend. The CEO and co-founder Robert Pasco was inspired by his own experience of unmanageable debt and a devastated credit score to completely rethink credit scoring using open banking. Plend received funding through an incredible VC programme that considers business propositions that address the poverty premium.  The current outdated and opaque method of credit scoring does not serve the 20+ million people (like Rob) who can’t get an affordable loan because of a poor credit score. Plend are FCA regulated and use open banking tools and provide a free service to other lenders in exchange for data that gives a completely different credit score which is then used as a basis for fair and affordable credit. Their biggest use case is consolidated debt, and they don’t use government data (an indictment of the state of government data that those in Govt should all think hard on).

So, there is much to celebrate and there has been lots of positive progress, but now is a critical time.  The UK has been a leader in fintech – we have more investment into fintech than the rest of Europe combined, but if we don’t keep the momentum we will fall behind.  We shouldn’t underestimate what can be achieved with the right approach and the need, as we have seen, is great indeed. Open banking and fintech can play a huge part in ending this enduring yet completely unacceptable situation, I look forward to greater regulatory focus on financial inclusion as a goal and more support from the government for the fintech jewel in the crown of UK plc. 

Author: Lord Holmes, Member UK House of Lords

Helen Child, Founder & CEO, Open Banking Excellence

Take a look at our Campfire hosted by Lord Chris Holmes: Open Finance & Financial Inclusion: Building a Better World

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