The cost-of-living crisis continues to expose new groups of people to financial pressures. With warnings of a ‘mortgage meltdown’ and the number of people opting to make cash payments increasing for the first time in a decade in September 2023, The Payments Association has presented a report to the government and regulators identifying the new groups at risk and what can be done to create a more inclusive system.
The report, Navigating the rising cost of living: Payments innovation as a game-changer has found that people from an increasing variety of backgrounds are struggling to face rising energy bills. Not to mention inflation affecting the price of food, groceries and fuel, as well as rising interest rates affecting mortgages, rent, and falling house prices. There are still over a million people unbanked, and the poverty premium means many of those who are worst off are paying the highest rates for basic services.
The Payments Association’s Project Inclusion
In this context, The Payments Association’s Project Inclusion has presented to Parliament its recommendations for collaboration and innovation to ease the impacts of the cost of living and poverty premium in the UK.
It details which groups have emerged as newly facing financial exclusion, how fintech and payments innovations have the potential to support them – such as through welfare reform – and collaborative next steps for the public, private and third sectors to pave the way for more inclusive, accessible and affordable financial services.
Tony Craddock, director general of The Payments Association, said: “The aim of The Payment Association’s Project Inclusion is to educate and work together with government, regulators, and organisations in the third sector. Our goal is to provide clear insights into innovative payment solutions that can help reduce financial exclusion and the burden of poverty. We strive to achieve this through collaboration and by initiating thought-provoking campaigns and providing valuable input in regulatory and legislative decisions.”
Discussing the report, the MPs and representatives from banks and regulators were in firm agreement that cohesion and collaboration from the public and private sector will be pivotal to ensuring that consumers have better access to tailored financial products and services during the cost-of-living crisis.
The discussion centred on how to support the financial stability of groups such as new homeowners, gig economy workers and Universal Credit claimants through innovations such as AI, open banking, security frameworks and data-sharing.
Combatting financial exclusion
Based on interviews with payments companies, third-sector bodies and local councils, the report identifies newly underserved groups, the types of financial exclusion issues they face, and how technology and innovation could be democratised to support them.
These groups are:
- Working families that claim benefits to top-up household earnings (representing millions of first-time Universal Credit claimants in low-paid work)
- The embedded underserved (representing employees in the gig economy and people with limited digital access)
- The unstable owners (representing younger first-time homeowners who lack resilience and are now at risk).
Neil Harris, chair, The Payments Association Advisory Board, commented: “It’s an honour to have this opportunity to present the report, its findings and recommendations to Parliament. It’s the first in a series of active steps to represent the voice of those people most affected by financial exclusion, and involve the industry and policy makers who can provide the solutions to support them. We’re working hard to drive this narrative forward, and advance the much-needed action to promote financial inclusion.”
Pooja Bhachu, project lead for Project Inclusion, The Payments Association, said: “Our work is vital in providing key insights into how payments innovation is currently aiding those most affected by the cost-of-living challenges, as well as highlighting areas where additional cooperation between the industry, policymakers and third sector is essential.
“Our purpose is to bring about collaboration and clarity on innovations, which could help reduce financial exclusion, I feel today we have facilitated vital discussions on these issues and catalysed much-needed action to improve financial inclusion across the UK.”
The clear recommendations for change, include:
- Encouraging the DWP to create a Universal Credit sandbox that innovators can use to build new products and services without the need for government commissioning.
- Prioritising innovation funding for financial inclusion services under a model that promotes the involvement of innovators in partnership with the third sector.
- Empowering the third sector to identify the issues related to the cost-of-living crisis and proactively seek scalable solutions in partnership with startups.
- Setting policy and regulatory frameworks for customer-led data sharing between services, especially in the area of AI-powered debt and money advice, allowing more non-traditional providers to offer early intervention tools.
- Reviewing the regulation of data use in financial services, such as affordability checks, to drive innovation in products and services that match the flexibility of modern work and life for all consumers regardless of income.