Two sides of the same coin: Financial and digital inclusion
By Nabeel Irshad, Vice President, Government & Public Sector, UK & Ireland, at Mastercard
The issue of how to tackle financial inclusion has long been a part of the conversation in banking and financial services circles. Regulations have led to the UK’s biggest banks having to provide ‘basic bank accounts’ to cater for those who do not qualify for regular current account products. Many fintech and prepaid players have spotted an opportunity to provide products and services to underserved communities, whether it be payment cards without the need of a bank account, or financial wellness tools that help with budgeting and basic personal finances.
Despite these positive steps, financial exclusion still stubbornly persists. Research by The Inclusion Foundation shows that 1.23 million of the UK’s most vulnerable are unbanked. One in four of us will experience financial exclusion at least once in our lives.
The recent Covid pandemic has brought the issue of financial exclusion back to the fore. With the use and acceptance of cash declining, many consumers and businesses have had to make major changes in how they operate when it comes to payments. Whilst many have embraced digital payments further, others risk being left further behind.
Widening the debate on inclusion
To date, much of the conversation around financial inclusion has focused on basic financial literacy, how best to widen access to existing financial products, or on how to improve products and services to appeal to underserved communities. By their very nature of being app / online only, neobank and fintechs – many argue – are not likely agents of financial inclusion.
This characterisation is unfair given a lot of recent innovation around budgeting tools, financial literacy, and bank account and card management has come from the fintech community. Yet, even these positive innovations miss the more fundamental barriers to financial inclusion faced by many; that is, the fundamental lack of digital skills and confidence many have in going online.
Widening the debate to discuss the ‘digital barrier’ alongside financial inclusion is crucial if we are serious about tackling the latter. Banks and fintech’s may well have the most beautifcally designed, intuitive websites and app user journies, but if someone cannot access the internet or has never learnt how to browse the web, it’s like having a high street with great shops and products that only those with special maps can find. Failing to address this as an industry risks us failing to tackle an underlying cause of exclusion.
The ‘digital barrier’ is real. In a recent DCMS select committee evidence session, The Good Things Foundation, a digital inclusion charity, cited a raft of statistics highlighting the issue. For example 11.9 million people are without basic digital skills, one in five adults are incapable of accessing online services, and nearly 7% of the population are without internet access. There is also a ‘digital divide’, with almost 50% of those with an income below £11,500 lacking essential digital skills compared to less than 11% of those with an income over £25,000.
This is something we can no longer ignore. Market forces and bank economics mean that we are undergoing an inevitable shift towards a world with far fewer physical branches, and more services being delivered through apps. The COVID crisis has seen an unprecedented shift towards digital payments in place of cash. One solution to this is to continue to provide alternative non-digital products (such as basic bank accounts). But these are expensive to run, can be difficult to apply for and lack much of the functionality of a standard bank account.
Surely an enhanced approach to financial inclusion is to improve the digital skills of those who lack them so that they too can access digital banking products and services, and benefit from the innovation they deliver. This should not be at the expense of banks and financial institutions compromising on the design of these services – intuitive user experiences and simple customer journeys are complementary activities to breaking down the digital barrier.
Playing our role – The Inclusion Foundation and Mastercard
At The Inclusion Foundation (TIF), we have structured our response to the challenge through delivery of three core services. As a dedicated not-for-profit Community Interest Company (CIC), TIF aims to provide better, more inclusive access to information on financial services and offer the banking world practical tools to help them improve access. The aim is to help signpost to everyone – particularly the most vulnerable – the services that can enable them to take control over their finances, thereby improving their lives overall.
The SignpostNowTM comparison service is all about helping underserved customers navigate the different financial products in the market and enabling them to compare these products in a clear, jargon-free way. We also want to celebrate the best products out there with The Inclusion SignpostTM – an independent accreditation service recognising financial products and services that serve the needs of previously underserved groups in society.
Additionally, the Foundation provides an education and learning programme for financial services providers and the government, The Inclusion Academy. The Academy’s think tank is dedicated to keeping the pressure on all key stakeholders, while publishing news, research and discussion papers that can aid in developing better and more inclusive products and services.
As proud pioneers members of TIF, Mastercard is also making its own commitment to digital and financial inclusion. In the UK, this includes looking at ways to use our technology and innovation to help consumers make digital payments safely and securely and finding ways to help those digitally excluded with practical support.
At a global level, we have brought 500 million excluded individuals into the digital economy in the past five years. We achieved that through more than 350 innovative programmes across 80 countries. This year, we made a further commitment to include another 500 million by 2025, a total of one billion people. We’re also pledging to help 50 million small and micro merchants with a direct focus on 25 million female entreprenuers.
We’ll do this by drawing together partners to widen government disbursement solutions, digitising how private sector workers are paid, through partnerships with mobile phone operators, and scaling efforts with fintechs and other partners to address the digital barriers to financial exclusion.
The Hard Part
One of the consequences of the Covid-19 crisis has been to put a spotlight on the issue of financial inclusion once again. It has been encouraging to see how so many in our industry have worked together at speed to come up with innovative ways to help customers, businesses and governments adapt to what many are calling the ‘new normal’. Conventional wisdom has often been that the ‘fallback’ of cash and physical services will always be be available as a last resort in the event of a crisis. However, the Covid-19 pandemic has demonstrated the complete opposite; digital payments, online and app-based banking has proved to be the anchor in supporting the continuation of consumer payments and businesses who have had to shut their physical stores.
The hard part for all of us in the industry is to ensure that in this rush to digital – brought about by tragic cirumstances – we do not forget the many who are not easily able to make this transition. We need to offer those people a range of support – not only through the design of products and services, but also in their fundamental digital skills and capabilities. Only by addressing the latter can we truly get to a position of eliminating financial exclusion in the UK.