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By Julia McColl, Chief Product Officer, Chetwood Financial

Despite the dizzying volume of innovation from within the financial services space in recent years, with the available products and solutions becoming ever more diverse and useful, lack of financial inclusion is a problem that merits greater attention from legacy financial institutions like high-street banks.

Financial inclusion – having access to ‘mainstream’ banking products and financial services – has a profound impact on quality of life and its absence can trap consumers in cycles of hardship. When dealing with unexpected financial troubles, such as medical costs or emergency repairs, not having access to suitable financial products can lead to people paying a ‘poverty premium’ – higher-cost alternatives that exacerbate financial hardship. Undoubtedly, this is a situation that is only made more likely by the ongoing cost-of-living crisis.

The problems of financial inclusion are more widespread than you might think: a troubling proportion of UK adults, numbering more than 1.2 million UK adults in 2020 according to the Financial Conduct Authority (FCA), don’t have access to a bank account, which automatically excludes them from most financial services and the benefits they offer.

Until recently, only legacy banks had the impetus and resources necessary to combat financial exclusion, but in recent years it has been the proliferation of new challenger banks and fintechs that have driven the fight for financial inclusion, banking the unbanked and providing financial services to underserved segments.

To each, their own

Part of the problem with financial inclusion is that, until recently, most banks adopted a ‘one size fits all’ approach to their products and services, with very little variation between providers. Those who weren’t suitable for most mainstream solutions had nowhere else to turn, and today, even though legacy banks have begun to offer more numerous and varied products, that old narrow mindset is still pervasive.

‘One-size-fits-all’ simply doesn’t work, especially considering the diversity in financial backgrounds and levels of financial literacy that are found throughout the populace. Part of the growth in popularity of fintechs and challenger banks is that they provide products and services to segments that have historically had very limited access to financial services, offering a route to financial inclusion where previously none existed.

Due to their agility, flexibility and willingness to adapt, fintechs and Banking-as-a-Service (BaaS) providers are more manoeuvrable than their larger counterparts, who are often hindered by red tape and legacy architecture.  In turn, they can provide services that are more responsive, customisable, and likely to meet consumers at the point of need – embedded finance products are already going some way to achieving this, allowing people without easy access to financial services with the ability to digitally store money, access credit and even transact cross-border.

The importance of ‘knowing your customer’ to all businesses, financial or otherwise, can’t be overstated, and fintechs have been better at recognising the gaps in the market and plugging those gaps with suitable, accessible products, and this is something that legacy banks could stand to learn from.

Knowing where to look

While it might sound simple to provide people with products that they need, identifying the underserved segments and understanding the factors that preclude them from financial services are challenges that banks and fintechs must overcome to combat financial exclusion.

In part, the key to this is data. Thanks to newer technologies and digital innovation, fintechs can access comprehensive product utilisation insights to gain a greater understanding of different demographics and their unique banking requirements.

This data can then be put to good use when implementing new features and launching new products that ensure that people never find themselves locked out of the financial ecosystem. Automating the often-complex process of financial planning is a positive step in reaching this goal – this is another area where fintechs are leading the way. Platforms like Cleo and Mint have made it easier for people to manage their finances, encouraging sustainable budgeting with ‘nudges’ and responsible use of financial products to boost financial wellness.

Of course, this leaves the unbanked, whose spending habits and financial resources are a lot harder to analyse. To reach these groups, banks and fintechs of all sizes should look to charities and non-profits like the Financial Inclusion Commission and the Just Finance Foundation. These groups are already providing financial literacy resources to unbanked or underserved segments, and by tailoring solutions to these groups, banks and fintechs can have a big impact.

What banks can do

The fundamental lessons that big banks must learn from fintechs are relatively simple – thinking small, being agile and leaving no one behind can make a real impact on financial inclusion. Creating customisable financial products and services that are suitable for underserved segments is vital, and utilising banking data and the power of open banking to create useful platforms will help boost financial literacy for consumers.

Where banks can go one step further is at the policy level. Banks have the connections, clout and financial knowledge to influence decision-makers and reinforce financial inclusion as a priority for financial institutions. In today’s world, nobody should be at a disadvantage in the financial forum, and making sure everyone can access the right solution should be a matter of principle.

About Author:

Julia McColl is Chief Product Officer at Chetwood Financial. A founding member of the business, Julia has led Chetwood from start-up to scale-up and beyond. She has a wealth of experience creating innovative consumer-led products that not only deliver ROI, but actually make people better off. Previously, Julia led strategic initiatives for Capco clients in Wealth Management and Private Banking, and worked at Lloyds Banking Group, where she was responsible for digital transformation across Credit Cards, Mortgages and Personal Loans

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