Money matters: tackling (rural) financial exclusion
Many people in the UK lack access to even the most basic financial services or are forced to rely on high-cost products which can prove damaging to their long term health. The ‘poverty premium’, where the poor pay more, exacerbates financial exclusion and reinforces a vicious circle. With many local bank branches disappearing and a growing emphasis on digital services, what can be done to tackle financial exclusion in rural places? Jessica Sellick investigates.
In March 2017, the House of Lords Select Committee on Financial Exclusion published its report on ‘tackling financial exclusion: a country that works for everyone?’ This revealed that 1.7 million people in the UK had no access to a bank account, 40% of the working age population had less than £100 in savings, 51% of people aged 18-24 years regularly worried about money, and at least 600,000 older people were financially excluded. The Select Committee has called on Government, the Financial Conduct Authority (FCA) and banks to give greater priority to tackling financial inclusion. The Committee’s recommendations include: (i) a call on Government to appoint a Minister for Financial Inclusion tasked with reporting annually to Parliament on progress made to address financial exclusion; (ii) broadening the remit of the FCA to establish new rules requiring banks to have a duty of care towards their customers; (iii) interventions aimed at improving levels of financial literacy; and (iv) a greater understanding of the relationship between disability, mental health issues and financial exclusion.
In April 2017, ATMIA (a non-profit trade association representing the global ATM industry), published ‘access to cash: the first step towards financial inclusion’. This report provides an international overview of the role of cash and ATMs in reaching financially excluded persons who have no bank account. The report includes case studies from the UK, Brazil and the Philippines. Quillaume Leperq, the report’s author, describes how “a transition away from cash would only serve to isolate the unbanked and the underserved from the rest of the population…Efforts to eliminate financial exclusion must take into consideration the ways in which those who make up the unbanked are already marginalised”. The Digital Money Index which ranks countries’ readiness to migrate from cash to digital payments: with the UK ranked in fourth place in the Index followed by the United States (third place), Singapore (second place) and Finland (first place). In these countries the use of contactless debit and credit cards, smartphone ownership and bank account penetration rates are all high. In the UK transportation has been a key driver of contactless payment adoption by consumers; with Visa Europe predicting by 2020, 25% of UK consumers will be using mobile payments on a daily basis (up from 8% in 2015).
For me, these reports illuminate two issues: firstly, the often uneven and unequitable access to financial product and services. Secondly, the scale, development and adoption of new payment technologies suggesting we are moving from a cash-carrying to a cash-less society. In the words of Ajay Banga, the CEO of MasterCard, is there a risk that we are “creating islands where the unbanked transact [only] with each other.” How we can bring people living outside of the financial system into it – especially in a rural context? I offer three points.
Firstly, what do we mean by financial exclusion and financial inclusion?
The term ‘financial exclusion’ first emerged in the 1990s in academia. Academics researched bank branch closures and people’s physical access to financial services. At this time financial exclusion was regarded as the ‘processes by which individuals and households face difficulties in accessing financial services’. Financial exclusion was therefore seen as a geographical (exclusion) issue in that closures appeared to have disproportionately been concentrated in poorer areas.
Since the 1990s understandings of financial exclusion have evolved to individual, institutional and behavioural forms of exclusion. For example: the failure to qualify for a financial service because of the minimum deposit required or poor credit history (condition exclusion); the cost of financial services such as unauthorised overdrafts (price exclusion); less profitable customers being unaware of the financial services available because they are not targeted by providers (marketing exclusion); and some people view financial services as “not for people like us” (self-exclusion).
The term ‘financial inclusion’ emerged in 1997 as a response to the problem of exclusion and was first seen as ‘securing access to appropriate, affordable products and services.’ Over time, this understanding has evolved from being an access issue to one of financial citizenship where interventions are required to support individual’s to improve their financial literacy and capability so that they can better manage their own finances.
The Financial Inclusion Commission (FIC) is an independent campaigning body made up of parliamentarians and experts, whose aim is to promote financial inclusion on the public policy agenda. Back in 2015, the FIC produced its report ‘financial inclusion: improving the financial health of the nation’. This brought together evidence on financial inclusion, identified gaps and set out some of the challenges ahead. Since then the FCA has published Occasional Papers on access to financial services in the UK. The 2016 paper, considered how access affects not just the vulnerable, but consumers across the spectrum – and how this situation is not static because new access issues are emerging all the time because of social and technological change. Since 2013, the School of Social Policy at Birmingham Business School has published an annual financial inclusion monitoring report. This recognises how achieving financial inclusion means people need: (1) a secure income which meets the Minimum Income Standard; (2) access to appropriate and well-regulated financial services; and (3) access to free and appropriate advice, particularly for those with debt problems.
What emerges from these policy and academic discussions is the need for people to be able to access basic financial services (e.g. bank account, insurance, pensions), access affordable credit and have a minimum budget available to be able to live. While much research has focused on vulnerable groups (i.e., older people, people with mental health problems, people with disabilities), there is an increasing recognition that financial exclusion affects different kinds of people at different points in their lives (i.e., people in the armed forces or people privately renting who move around may find it difficult to access a bank account or mortgage). While there will always be people that do not wish to access financial services, for those that do, they need to be able to access regulated, responsible, affordable, appropriate products and services.
Secondly, how are rural communities affected by financial exclusion?
There is very little current discussion and debate about the impact of financial exclusion on rural communities. Back in 2009, the now defunct Commission for Rural Communities (CRC) published a support guide to rural financial inclusion. The guide highlighted the ways in which living in rural area brings additional challenges – how financial exclusion is less visible in rural areas compared to urban areas making it harder for providers to identify and target support to those who need it most; how poor public transport and long travel times makes physical access to mainstream financial services difficult and costly for rural communities; and how delivering debt advice and credit union outreach services costs more because of the dispersed client base and economies of scale. Since 2009, two trends in financial services have compounded these findings and impacted on rural communities: (1) an ongoing programme of bank branch closures, and (2) an increasing reliance on digital services.
High street banks delivering services through their branch networks have been contracting for many years. According to information published by the FCA, in 1988 there were 20,583 branches but by the end of 2015 there were reported to be only 8,400 branches. This decline is much steeper than in other parts of Europe: with the UK having 180 branches per million inhabitants in 2014 compared to 447 in Italy, 521 in Germany, 589 in France and 718 in Spain. ’Abandoned Communities’ was produced by the campaign group Move Your Money in July 2016 to highlight the impact of bank closures and the people they leave behind. Since 1989 1,500 communities have been left with no bank and another 840 communities with only one bank remaining. The group suggests banks are closing branches in poorer areas while opening or retaining them in more affluent areas. Their research shows of the 600 branch closures between April 2015 and April 2016, the banks have been targeting rural areas for closures. More significantly, the group found that areas losing the last bank in their town received £1.6 million less lending over the course of a year.
In Bricks and Clicks, Deloitte identified seven different types of branch catchment. One of the categories is ‘declining rural communities’ – places where the people are amongst the poorest, unemployment is high and where branches are struggling with shrinking footfall and reduced demand for financial services. This is leading to debates around cost efficiency, co-location and to what extent banks should help rural communities get back on track. Amid reports that 500 branches are set to close in 2017, research by Saga has revealed that 5.5 million people aged over 50 years of age will be forced to switch their account of their local branch disappears – significantly, some 37% of those surveyed said without access to a high street bank they would be prevented from carrying out many financial transactions.
On a more positive note, since 2015 twenty-five banks have had arrangements with the Post Office for their customers to be able to make cash withdrawals and deposit cash and cheques through its 11,500 branches. The minimum network access criteria means 99% of the UK population, including 95% of its rural population, should be within six miles of a post office. However, even six miles may be a difficult, costly or an impossible distance to travel for many rural residents.
While branch closures raise issues about how individuals access existing bank accounts, there is concern that removal of local banking facilities altogether may lead to increased financial exclusion.
An increasing reliance on digital services poses a number of additional challenges for rural residents. Yet digital technologies are increasingly being used to tackle financial exclusion (e.g. through the use of pre-paid cards, budgeting apps, and simplified current accounts designed for lower income and less financially stable households). The Government has also looked at how digitisation of public services can reduce financial exclusion. The issues in rural areas are two-fold: many rural areas do not have a reliable or fast broadband service, and some rural residents do not have the necessary computer skills to be able to manage their money online. The digital exclusion heatmap developed for Go ON UK, for example, found where digital skills were lacking, lack of infrastructure was part of the story.
Thirdly, what, then, can be done to tackle financial exclusion in rural areas?
Previously, the Commission for Rural Communities had called for different parts of the public, private, community and voluntary sectors to come together within a locality to work on financial exclusion issues (e.g. supporting credit unions to increase access to affordable credit); and emphasised the need to rural proof financial services provision and availability.
If the solutions are likely to be local, Local Authorities have a key role to play. The LGA’s review of local welfare schemes in 2014, for example, highlighted how Councils were innovatively administering local welfare assistance (LWA) funding. While many authorities wanted to expand scheme amid rising demand, they were cautious about planning for the future because of Housing Benefit reform, Universal Credit and a backdrop of a further £12 billion reduction in spending on working age welfare benefits.
The Money Advice Service (MAS) provides a range of tools and calculators on money matters. Set up in April 2011, the MAS are funded through a series of levies on the financial services industry and operated by (but independent from) the FCA and Government. Through the What Works Funding Programme, MAS is providing £7 million in 2016/2017 to build the evidence base around what types of interventions can make a measurable impact on people’s financial capability and to share that evidence with stakeholders across Government, financial services and beyond. Some of this pilot activity is taking place in rural areas. Cornwall Rural Community Charity (CRCC), for example, is running Get £ F+IT, a project supporting 80-100 older people to help them manage their money in retirement. This project is providing older people with six half-day digital and financial inclusion sessions in four rural locations. The findings of this work will be available on the Financial Capability Evidence Hub. In October 2016 the Government announced the replacement of the MAS with a new body, publishing a consultation on the work of this new body in December 2016. This new body is intended to bring together pensions guidance, money guidance and debt advice in one place and also required to scale up financial capability projects that have been proven to work.
The Big Lottery Fund is matching funds from the European Social Fund (ESF) 2014-2020 to invest in local projects tackling the root causes of poverty, promoting social inclusion and driving local jobs and growth. Known as Building Better Opportunities (BBO), the amount of funding and type of projects vary according to Local Enterprise Partnership (LEP) area but some include projects that support financial literacy. Another Lottery programme, Improving Financial Confidence (IFC) is aimed at helping people become more confident in, and more aware of, how to take control of their finances. Mainly (although not exclusively) delivered by Citizens Advice Bureaus, IFC is helping rural and urban residents to access and use financial products and services suitable to their needs.
In response to concerns about the damaging effects of payday loans and other forms of high-cost credit, the Archbishop of Canterbury established a Task Group on Responsible Credit and Savings. The Just Finance Foundation was established in 2016 by the Church of England and Church Urban Fund, in order to implement the Archbishop’s vision of a fairer financial system. After 2 successful pilots a Mustard Seed Appeal is underway to help fund 30 dioceses to train 6,000 volunteers to support 2.5 million people across the UK struggling in financial distress.
While these initiatives highlight the role of Government, charities, the voluntary sector and faith groups in tackling financial exclusion; perhaps there now needs to be a renewed focus on identifying financial exclusion specifically in rural areas?
A broad range of support and guidance is required to help everyone get out of, and avoid falling into, financial exclusion – from providing children with lifelong skills in savings, borrowing and debt, through to meeting rising demand for debt advice services. Bank branch closures, broadband availability, digital skills and welfare reforms are all affecting the extent to which rural residents are financially included in rural England. Going forward, will a new Government commit to a Minister for Financial Inclusion (and will he/she rural proof public policy and its implementation) and will the new Money Guidance Body in 2018 commission services in rural places (i.e., of successful interventions funded by the MAS that are ready for replicating, further testing and/or scaling up in other parts of the country)? Above all, how can we ensure rural financial exclusion is not hidden and that people living in rural areas receive the financial access, support and guidance they need?
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Jessica is a researcher/project manager at Rose Regeneration; an economic development business working with communities, Government and business to help them achieve their full potential. Her current work includes supporting a Lottery programme to help people into paid work; research for the NHS on rural workforce recruitment and retention issues and evaluating a financial capability project. Jessica can be contacted by email jessica.sellick@roseregeneration.co.uk or telephone 01522 521211. Website: http://www.roseregeneration.co.uk/ Twitter: @RoseRegen
