Lensi Photography/Starling Bank.
What banks can learn from fintechs when it comes to tackling financial exclusion
Although technology is pervasive in society today, lack of access to ‘mainstream’ banking and financial services remains a prominent issue in the UK, writes Chetwood Financial's chief product officer Julia McColl.
While great strides have been made in building first-class financial products and applications in recent years, the unfortunate reality is that many people are still negatively impacted by financial exclusion and a lack of access to equitable financial services.
In other words, there are many people who find themselves unable to access products and services that are both appropriate and affordable to their unique needs and circumstances.
This affects people across a wide range of different demographics, including those on a low income, young people, the elderly, people with disabilities, those in poverty and unemployed people.
The statistics are troubling; according to research from the Financial Conduct Authority (FCA) in 2020, there were 1.2 million UK adults without access to a bank account, while many more continue to rely on cash alone, or unsuitable financial products, to manage their finances.
In practice, people who are locked out from ‘mainstream’ banking services end up paying a ‘poverty premium’ for products and services, as they are unable to access more competitive prices online.
In this climate, and as the rising cost-of-living continues to place downward pressure on the finances of many in the UK, fintech has been hailed as a potential salve, offering novel, customer-centric solutions to solving financial exclusion.
Away from the red tape and legacy infrastructure that holds many established retail banks from swift innovation, the fintech sector holds considerable advantages when it comes to developing responsive, dynamic products that are attuned to the unique needs and wants of the individual.
Know your customer – and act accordingly
Ultimately, different customers have completely different needs. Instead of creating a one-size-fits-all product to try and address them all, by design, the best fintechs can create specific products for individual groups of customers and deliver them to market at pace.
This is one of the greatest lessons that traditional banks can learn from their nimbler, tech-first counterparts; harnessing data and behavioural insights while carrying out extensive primary research is key to ensuring that products are truly delivering against customer needs and tackling financial exclusion.
Newer technologies and digital innovation mean that banks and fintechs can capture comprehensive data, exploring product utilisation in different demographics and contexts.
Armed with these insights, they can listen to and understand their customers’ lived experiences, and act accordingly.
This means that, like fintechs, banks can be more responsive when implementing new features and adapting their pre-existing products and services.
Beyond this, ensuring that targeted support and guidance is provided might be a step to ensuring that someone who is already accessing financial products doesn't get locked out in the future.
Most banks today have built in functionalities to offer financial education to their users, but these incentives don’t go far enough.
Looking forward, deploying features that enable customers to raise problems pre-arrears – whether this is missing a credit card repayment or exceeding a pre-arranged overdraft – would be a significant improvement, ensuring that targeted support and guidance can be provided.
Meanwhile, financial coaching apps, like Claro Money, offer an interesting premise for banks to explore, which goes far beyond traditional leaflets and educational resources to address financial exclusion directly.
From gently ‘nudging’ users to encourage positive financial behaviours and goal setting, to increasing friction to ward off emotional or habitual purchases, there are several forms that product design can take to build financial education opportunities seamlessly into the user experience, depending on the demographic served.
Seeing the bigger picture
Beyond nudges and behavioural economics, fintechs are no strangers to building partnerships with complementary organisations.
Going forward, it’s vital for banking institutions to boost their collaborative efforts – combining their technology and financial expertise with guidance from charities, non-profits and the public sector to gain a fuller understanding of the bigger picture.
Collaborating with a range of stakeholders, many of whom are working on the ground every day to serve the common good, means that banks can learn more about the behavioural and social contexts of the underbanked. From there, these organisations can raise better awareness and pilot new ways of supporting those who face financial barriers.
From advocating for policy changes to launching user-testing initiatives with financial health and expert support agencies, this will fundamentally change the face of banking in the UK, making it a more inclusive enterprise.
Products and services that fail to meet these standards should be subject to greater scrutiny, and inclusive design must be part of the package.
Ultimately, fintechs are uniquely placed to deliver a more inclusive approach to product innovation – and one that legacy banks would do well to learn from.
Developing newer methodologies that are responsive, dynamic and consistently meet customer needs means that the financial services industry can challenge the ‘one size fits all’ mentality that has failed so many people in the past, and build towards a better future.
The views and opinions expressed are not necessarily those of AltFi.