The financial services (FS) sector has been going through a period of astonishing change, writes Ion Fratiloiu, Head of Commercial at Yobota, with a groundswell of new offerings and ideas arriving at an ever-more impressive pace.
Every week, new companies pop up with bright and innovative visions for the future, with banking-as-a-service (BaaS) providers making it increasingly easy and accessible for anyone to launch their own kind of financial product, unlike anything on the market today.
For those who closely follow financial news, readily investigate the latest entrants to the market and understand the developments within the ecosystem that make this rapid evolution possible, this can only seem like good news.
These products can offer tech-savvy, financially stable individuals new, better-suited services that can improve their financial wellbeing. More options mean greater variety – and greater potential to benefit. This, sadly, does not apply to everyone.
Tackling the problem of sub-prime
Many of us live with limited or no access to banking and financial services, either through a lack of knowledge or due to various barriers to entry. The unbanked, underbanked and financially vulnerable portions of the population might view the fintech revolution as though it were taking place on the far side of a telescope – as if meant for someone else.
For the 12.5 million UK adults with little to no confidence in their ability to manage money, or the one million who don’t have a bank account, the growing popularity of tools like open banking and BaaS might seem irrelevant, but this really couldn’t be further from the truth – these things might be able to change their lives.
Increasing financial inclusion within the UK must be a priority for us as a nation. People who don’t have access to the best banking solutions are less able to improve their own financial health and are more vulnerable to sudden disruptions, like those we have seen emerge from the pandemic.
28% of UK adults (14 million people) experienced a direct negative impact on their income due to the coronavirus pandemic (as of May 2020), which goes to show why increasing financial inclusion is so important – particularly in a country that views itself as a leader within the financial world.
The value that exponential innovation and the proliferation of new fintech players can offer those in need, is that the increased variety and personalisation of these new products and services can lower the barriers to entry and gaps in knowledge that keep so many people unbanked. The responsibility lies with the current and upcoming generations of fintech to integrate the ideal of financial inclusion into their DNA and ensure their products are accessible, inclusive and fairly priced.
The road to financially inclusive fintechs
A common cause of financial exclusion is the problematic practice of standardised credit scoring factors. Judging everyone to the same standards can be unproductive, as many people and groups face outlying factors and atypical circumstances that, if left unchecked, might preclude them from accessing the best financial services available.
Powered by BaaS and open banking, fintechs with bright ideas and the ability to see them through have the power to lower costs, increase speed and accessibility and allow for more tailored propositions that can suit these otherwise excluded groups. The rise of flexible and cloud-native banking infrastructure underpins the ability of businesses like these to quickly spin out products that address the – often overlooked – needs of their end-users.
Making socially responsible decisions
In the case of neo-lenders and creditors, being able to offer an online and upfront decision empowers customers to check their eligibility for products with ease, to pick the best loan for their situation and to receive the funds within minutes. Increased access to products that are right for them is a positive step for many towards increased financial inclusion.
It is not only questions of personal finance that can be affected by exclusion – companies without the necessary operational track record to qualify for a business loan can benefit from fintechs that are set up specifically to deal with clients like them, allowing new businesses to be established that might otherwise have been denied support.
Open banking and improved data sharing is key to these sorts of developments. New services that are built with open finance at their core, can help people with limited knowledge of FS solutions, using their existing financial data to identify potentially beneficial products and suggest methods of improving their credit and financial wellbeing. These datasets are also beneficial to the wider population, as they can inform the creation of new fintechs and products specifically designed to serve different demographics.
Making a mission of inclusion
The direction of evolving financial products and services, as well as the technologies that underpin them, bodes well for the future of financial inclusion in the UK. But for this positive effect to grow and sustain, these fintechs and the partners that support them need to ensure that financial inclusion is a priority from the ground-up.
Knowledge sharing is another priority. Fintechs and those who engage in the surrounding discourse need to use their platform to promote financial literacy and to spread the word about how inclusion can improve financial wellbeing and quality of life. Ensuring everyone has the means and the knowledge to access the best option on the market levels the playing field and benefits everyone.
The latest generation of lenders, payments providers, comparison platforms and all other kinds of FS platforms can contribute to the issue in ways that established financial institutions cannot. Their strength is in their dexterity, being able to create new products that are better targeted at overlooked customer segments, and in doing so, increase both the available options for the systemically underserved, and generate valuable data about the causes and effects of the issue.
Positively, we seem to be going in the right direction. Yobota’s most recent survey revealed that almost two thirds of UK banking and FS firms plan to invest in products that drive financial inclusion in 2022. I hope we see this number increase, and that these firms make good on their promise to prioritise financial inclusion in the coming years. People are safer and better off on the inside – so let’s not keep them out.