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The British Irony: London as the European Financial Hub and Home of Financial Exclusion

By Agathe Barcelo for The Fintech Times.

Financial inclusion is a global problem; and although it is often associated with emerging economies in Africa and South America, developed countries with an established financial system also exhibit this structural issue. Paradoxically, the UK – European financial hub and world fintech centre – faces numerous challenges with regards to financial inclusion.

What does ‘financial inclusion’ really mean?

The World Bank states that ‘financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.’ And according to the Financial Inclusion Commission, financially excluded people are a ‘segment of the population that has a need for greater access to financial products and/or a need to improve their money management skills’. Access to and management of finance are problems that very often overlap.

What are the key facts of financial inclusion in the UK?

The UK exhibits many of the problems that foment financial exclusion. This is paradoxical, when you consider the central prominence of London in the financial services sector.

  1. Banking: internationally, the UK is ranked ninth in the world in terms of banking inclusion by the World Bank. Translated to numbers, 1.5 million adults remain unbanked in Britain today.
  2. Credit: the level of unsecured consumer credit has tripled in the past 20 years, from £51.8 billion in 1993 to £160.4 billion in 2014. It is estimated that 49-64 percent of households in the UK hold some form of unsecured credit.
  3. Savings: there are 13 million people in the UK who do not have enough savings to support them for one month if they experienced a 25 percent cut in income, and only 41 percent of British households are saving. UK citizens save less than almost any other country in the EU.

How is fintech helping financial inclusion in the UK?

Fortunately, technology is playing a central role in fostering financial inclusion in the UK. Fintech companies are undeniably helping to expand the reach of finance at a global level. However, financial inclusion might not be the primary goal of those fintech companies. The possibility to use technology that reduces costs and expands financial accessibility turns financial inclusion in to a positive externality of fintech development. The Fintech Times had the unique opportunity to meet some of the most active promoters of financial inclusion in the UK. These fintech leaders have shared their views on their mission, the problems that they are aiming to solve and the current limits and challenges that they are encountering along the way.

Iwoca CEO, Christoph Rieche, shared his goal: “The dream that I had and the dream that I share with anyone joining the company is that in 2020 the Office of National Statistics would state that the GDP growth was much higher thanks to small businesses growth.” Iwoca facilitates finance and credit primarily to SMEs, through a very simple and straightforward system of credit business performance and assessment. This easy process, and the very strong emphasis given to SMEs, is what differentiates them from their competitors, as Rieche illustrated – “we are all about small businesses. We put them first, we deliver them with high quality customer services and we help them access finance and have money in their bank account within hours of their application.”

AIRE is another company that is helping to foster financial inclusion through its technological capabilities. AIRE has a different focus to that of Iwoca, as they are primarily concerned with giving a credit scoring to underwriting credit tools, assisting people to spend responsibly and be able to easily access other financial products. Very interestingly, AIRE emphasised their aim to reach a broader scope of financially-excluded individuals, which transcends the ‘unbanked’ notion: “This isn’t just about those who are underbanked, but in many cases they are thin-file customers who might be younger millennials that have just entered the financial system.”

Another well-known company that helps to promote financial inclusion is Transferwise. The company was a pioneer in reducing financial transactions costs, as clearly stated in their mission statement – ‘to make moving money be as easy and cheap as sending an email.’ Financial inclusion, in this case, became a positive outcome of an innovative and technologically friendly business model and, most importantly, the emergence of companies like Transferwise is inspiring traditional and established financial institutions that are trying to emulate this model. Arun Tharmarajah, Head of European Banking at TransferWise, shared that “recently Barclays changed their online banking service to make their 2.75 percent exchange rate mark-up clearer to the customer – that’s pretty amazing when you consider where the banks were a few years ago. We’d love to see the rest of the industry following suit.”

The government is also starting to become aware of the benefits of fintech companies in promoting financial accessibility, as can be seen through initiatives like Fintech for All from Tech City UK, which awarded fintech companies whose purpose was concerned with enhancing financial access.

Fintech companies and technological advancement have opened up the possibility of choosing between a greater array of services and products for unbanked customers, who would not have been able to access traditional financial services otherwise. They provide an increased scope of choice and value benefits through the introduction of many products, platforms, and a reduction of the role of intermediaries. Enthusiasts and industry experts alike can even envision countries existing in the future with no reliance on paper-based currencies, eradicating structural problems of corruption and crime. The continued development of fintech will likely provide a wild array of financial inclusion possibilities and solutions, both in the UK and worldwide.


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