Could technology hold the key to eliminating financial exclusion?

Technology and electronic payments are a lever, providing new ways to bring people into the system and to reduce vulnerable citizens’ reliance on cash.

By Mark Barnett

There is still a long way to go to improve the nation’s financial health. A key aspect of this is to tackle financial exclusion, and to ensure that every adult is connected in the right way and affordably, to the regular, and therefore regulated financial system. Financial Inclusion is not a party political issue, it is a necessity which makes economic and social policy sense. Where people are financially included individuals, firms, and society as a whole benefit.

The assumption that financial exclusion is a problem solely in developing economies alone could not be further from the truth. In Western Europe, the population of unbanked and underbanked totals 93 million people. The UK is also ranked ninth in the world in terms of banking inclusion, however two million adults still do not have a bank account. As the UK recovers from the economic crisis, living standards have fallen and inclusion in the financial system remains a major issue. This is despite the fact that the UK leads the world in financial services and technology. Sluggish wage growth, unemployment and macroeconomic uncertainties have placed great pressure on household budgets, exacerbating the fragility of personal finances for many of Britain’s most vulnerable citizens.

While there has been good progress made in the past to address the exclusion problem, the need to realise financial inclusion has never been greater. In March 2015 a report published by the Financial Inclusion Commission, a non-partisan, cross-party group of experts and parliamentarians, identified 20 key recommendations that policy makers could implement to create a financially healthy society. Among them was the recognition of the potential opportunities offered by developments in technology and digital innovation to connect all citizens to the banking system.

Technology and electronic payments are a lever, providing new ways to bring people into the system and to reduce vulnerable citizens’ reliance on cash. Evidence and experience has shown that where cash usage is higher, so is the level of corruption, poverty and exclusion, as well as lower levels of productivity and growth. The Bank of England recently published analysis of cash usage, finding that half of cash in circulation is held overseas or used in the shadow economy. Due to the untraceable nature of this tender, it is not known how much cash is lost to each market.

Promoting cashless economies, supported by technology, has a significant impact on the financial capability of individuals in managing private finances. New technologies enabling bank account holders to distribute their money into jam jars is an example of the role digital innovations are playing in addressing the exclusion issue. There are already examples of where this is working. In the UK, the diverse London Borough of Brent recognised the opportunity electronic payments present and became UK’s first cashless local authority. Internationally, programmes like SASSA in South Africa and Adahaar in India, are overcoming the challenges of access and identification in disbursing welfare to remote communities, revolutionising the financial capability and access of the welfare recipients.

Yet, underlining all of this is a need for real leadership to drive the financial inclusion agenda. Politicians and industry both have important roles to play in joining-up and supporting the many organisations and individuals already doing good work in this area. Only through this leadership can the UK become a truly financially inclusive society.

Mark Barnett