Chetwood Financial is a Fintech dedicated to underserved segments of the market, providing innovative products designed specifically to address unmet needs within retail banking. With financial inclusion a frequently discussed topic, particularly in the face of the Covid-19 pandemic creating financial hardships for some, fintechs by their very nature are often the first to help the underbanked.
Julia McColl, Commercial Director at Chetwood, has a particular passion in tackling financial inclusion. Her role involves defining and delivering commercial programmes across Retail Banking and Wealth Management, specialising in product development, customer experience and delivering return on investment. Prior to joining Chetwood, she led strategic initiatives for Capco clients in Wealth Management and Private Banking.
The Fintech Times sits down with Julia to understand what affects how people are financially excluded, and what fintechs and banks can do to solve the problem.
What do you think the main issues are involved with financial inclusion and why is this a problem that fintech’s need to address?
It’s a really interesting issue because there’s so much to talk about. We’ve already made quite a lot of improvements within the industry as a whole, as there are a lot more customers getting basic bank accounts as well as the regulatory pressure around that increasing. However, we still see such a massive group of customers that are unable to get access either to banking products or credit products – the progress we’ve made isn’t moving fast enough. It’s something that I’m super passionate about and I do think more is being done in terms of communication across high street banks and fintech’s, with both sectors taking a collective industry view of what needs to be done and start moving it in the right direction.
I also feel like financial inclusion is a topic where some people don’t appreciate how close to home the issue is and can feel far away from it. It’s not necessarily all about income and economic background either. For example, you may struggle to find insurance if you have a pre-existing condition. That’s a very real scenario that anyone can find themselves in and comes under financial inclusion, which I don’t think a lot of people realise. I feel like this is a topic where usually most people walk around thinking that it’s a problem for someone else and that it doesn’t affect them. We’re extremely fortunate if we’re in that space but getting people to actually appreciate what financial inclusion means could be very powerful and make a huge difference.
How has the pandemic affected the issue?
We’ve definitely seen two extremes at a customer level. There is a group of customers who have obviously had their finances negatively impacted by the pandemic, but on the other side, we’ve seen a group that has benefited from having more disposable income from being at home all the time. This group of people have been able to make prepayments or overpayments on their loans and are actually paying down debt. So, there’s this really extreme divide between people that absolutely have been impacted through losing their jobs, or being furloughed on reduced pay, versus a group that are actually better off now than before.
The pandemic has helped with the issue in some ways as it’s got people over the line and removed some of the fear factors they have around financial technologies. We’ve seen consumers be reluctant to engage with digital payments or even contactless but because the pandemic created a drive for these products they’re now using them every day. Hopefully, this continues and people become more comfortable with this technology, as if we can move a chunk of the underserved population into more of a digitally savvy space then it opens up a world of options for them.
There have definitely been some positives as well as the negatives that we’ve seen for those customers that have been impacted. Another thing that strikes me from COVID is that it has made the data less reliable for everybody in terms of credit decisioning. Everyone’s credit bureau file is less reliable than it once was due to initiatives such as repayment holidays. Obviously, these measures were put in place for the right reasons but many people took them who didn’t really need them from a credit perspective, so it makes the data less useful and so almost levels the playing field slightly.
How can challenger banks and FinTech’s tackle financial inclusion?
Our business model is set up around looking for underserved segments. Chetwood’s whole purpose is about identifying those underserved segments and then creating products around them. So, by our very nature, we set out to help those groups of customers.
If you take our LiveLend solution as an example; we often talk about why we created it and it was mainly due to the fact that high street banks lend up to 29.9% APR, and policies around those decisions were often black and white. Then on the other side, the payday lenders were popping up but there wasn’t anything in the middle of the two extremes at the time. There has been a lot more movement now and a lot more competition in the space which is positive, and a lot of that has come from fintechs.
For us it was based around creating a pure marketing approach that was to really understand a group of customers’ needs and creating something specific for them, allowing us to be more niche and targeted.
Are challenger banks and fintech’s better equipped to deal with the problem than high street banks and other incumbents?
Fintech’s have an advantage over banks from a cost-based perspective as it allows them to have the approach of focussing on underserved segments. Challenger banks and fintech’s also tend to be able to react quicker to integrate other services, whether that’s using open banking, working with other providers around other forms of income verification or even looking to utilise technology to help customers who wouldn’t have enough information on a traditional bureau search.
Fintech’s can also make banking fun and interesting. For example, the newer banks with their pre-paid cards took away the stigma of not having a bank account and actually made pre-paid debit a cool thing, which was an interesting shift as previously they were seen as subprime products and they weren’t something that people aspired to.
A lot is happening in this space which is exciting, but despite this, and despite the fact the government have done a lot, there still needs to be a really important role for high street banks because of their reach. Not every customer in the UK is comfortable with working with a fintech or using a service from a new brand. How high street banks get people into basic bank accounts, and from there into standard bank accounts is something that they need to drive and lead as they have the customer base to do.
It’s ultimately a collective effort with challengers and incumbents coming at it from different angles with different advantages to play with. Between us, we can make a lot of progress.
Can personalisation help with the issue?
Personalisation is absolutely key to solving the problem – its Chetwood’s whole business model. For me, it’s literally just taking a segment and understanding their needs and pain points, personalising the journey around what they need and what they’re hoping to achieve. fintech’s can serve customers in a way that perhaps a bigger organisation would struggle to as they can’t be as personalised around what a group of customers’ particular needs are.
What is the future for Financial Inclusion – what do you think is going to be a key factor in changing the situation?
In my opinion, it still comes down to education and having people understand from the outset. We’ve heard this from our customers, a lot of them are people who have ultimately got into some trouble and are now on a recovery trajectory, and many of them had no idea the impact their actions had. For example, not paying a mobile phone bill can impact your credit file for the next 6 years. No one ever teaches you that, you don’t necessarily hear it from school or at home. There are some really basic financial educational principles that need more focus across the industry. That’s where it starts and if we can get people to almost self-solve some of the issues that we see, some of the reasons why people end up in this financially excluded state could be prevented. We need to educate people on basic principles, starting when they’re children, to help them understand managing their finances and hopefully, that will lead to change further on.