PHILIPPA: Hello, I’m Philippa Lamb, and welcome back to The Pension Confident Podcast. This time we’re going to be talking about financial inclusion, because more than seven million people are financially excluded in the UK alone. So what does that mean and what needs to happen to make sure that financial services work well for all of us?
We’ve heard a lot of talk from politicians lately about levelling up. Put simply, that’s all about creating opportunities for everyone, wherever they live, and making sure no one falls behind. But when it comes to financial services, falling behind isn’t always about where you live. Sometimes, it’s a system or a service that just isn’t set up to work well for you. Things like payments, savings, credit and even insurance.
So why isn’t it working for you? Well that might be down to your ethnicity, sex, religion, gender or your age. It could even be about your relationship situation or your health status. Lots of factors can play a part, but exclusion can have very serious consequences. So what can be done about it? Helping us level up financial services, today we have three guests. Nina Mohanty’s the CEO of Bloom Money, which is a community saving platform that helps people moving to the UK from other countries to save for their future. Hi Nina.
NINA: Hello. So glad to be here.
PHILIPPA: Emma Barrow’s Head of Communications at the Financial Services Compensation Scheme or FSCS. Hi Emma.
EMMA: Hello. Thank you for having me.
PHILIPPA: And, as always, our third guest is one of PensionBee’s own experts. This time, Chief Design Officer; Matt Loft. Hi Matt.
PHILIPPA: Because we’re talking about money and finance. Here’s the usual disclaimer before we start:
Please remember that anything discussed on this podcast should not be regarded as financial advice and when investing, your capital is at risk.
WHAT’S FINANCIAL INCLUSION AND WHO’S AFFECTED?
PHILIPPA: Now, we’re talking about financial exclusion today. I know we’ve got lots of expertise around the table. I’m wondering if we’ve also got some personal stories. Have any of you ever felt excluded from a financial product or service? Have you Nina?
NINA: Yes. So like many of our customers at Bloom Money, I’m an immigrant myself, to the UK. I come from the United States and was born and raised in California. When I first moved to this country, I couldn’t, for love nor money, get a bank account or a mobile phone contract.
NINA: Because opening a bank account comes with a lot of information requirements. So in the end, I had to actually go to the university where I was doing my masters degree and say, ‘please, could you write me a letter so that I can open a bank account?’ And that was also part of the mobile phone contract situation because when you take out a mobile phone contract, they’ll run a credit check on you, and of course, having just arrived in the country, I didn’t exist.
PHILIPPA: You didn’t have a credit record?
NINA: I didn’t have a credit record in this country. I was saying, ‘please, I just want a phone!’
EMMA: That’s something so simple, right?
NINA: Something so simple.
PHILIPPA: And so essential.
PHILIPPA: What about you Emma?
EMMA: I’ve got to acknowledge that I’ve been quite privileged in a lot of ways and I’ve not had that kind of experience. When I was growing up, we weren’t wealthy by any stretch of the imagination, but I was never in poverty. So I think my feeling of exclusion has come as I’ve progressed in my life, so as I’ve gotten into a better financial situation than my parents were at my age. That transition from very basic finance; from having a bank account, insurance and accessing credit to things like investments, and pensions. I found that incredibly difficult because culturally, when I was growing up, that just wasn’t a thing in my sphere. Levelling up from very basic finance into more advanced things and being able to grow your wealth through investment, I found that very difficult and felt excluded.
PHILIPPA: You just didn’t know how to do it?
EMMA: I didn’t know how to do it. I still feel today that it’s very hard to access. There’s this gulf between basic finance and savings, and being wealthy enough to be like a high net worth investor. And that middle part’s really difficult. I have felt excluded in that.
PHILIPPA: Yeah. And we are going to talk about financial education because it’s a big issue in this. How about you Matt?
MATT: Yeah, a recent example is how my wife and I were trying to open a joint account, which is something, I thought in the day and age of fintech banks, that would be very simple. Unfortunately that wasn’t the case. We went through a number of banks to try and set this thing up. There was no feedback as to why they wouldn’t give us a joint account; they just flat out wouldn’t allow us. A ‘computer says no’ kind of problem. It’s just really frustrating. I’m born and raised in the UK. I’ve got all of that history here, but still even then, it just wasn’t possible to do.
PHILIPPA: So there’s a few examples of the sort of problems we’re talking about. Emma, financial inclusion’s a bit of an umbrella phrase, isn’t it? What sort of things might it cover?
EMMA: When we think of financial inclusion or exclusion, that being the opposite, there’s two things that you can divide that into. There’s the more tangible and physical ways that people are excluded. They can’t access cash, they can’t access a bank account, they can’t access a phone contract account or get a joint account. Very physical and tangible things that you think should be fixable. They seem really logical. You would think you should be able to fix that.
PHILIPPA: And basic as well.
EMMA: Yeah. You should be able to legislate, you should be able to manage it so that it works. But I think, like my example, there’s the intangible part of inclusion as well, which is that cultural piece. Have you been exposed to that? Have you had the education?
PHILIPPA: So thinking about groups, Nina, as you say, you’re dealing with people who are coming to the country, but there’s a whole array isn’t there? Because it’s people with disabilities, women, people from low income backgrounds, of different religious backgrounds. Lots of different groups.
EMMA: Absolutely. And I think to an extent, I believe everyone’s probably going to be excluded at one point in their life. It mightn’t be a permanent feeling of exclusion. It might be a temporary thing that eventually you can get over. But I do think pretty much all of us will experience it at some point to some level. But as you say, there’s certain groups that are particularly affected by this and on a more long-term basis.
PHILIPPA: So we’re talking about a lot of people, aren’t we? Do we have any sort of sense of numbers?
NINA: I only know that the Financial Conduct Authority (FCA), our regulator here in the UK, recently stated that there are 1.2 million British adults that don’t have a bank account. When you think about that, it’s quite a large number of people just walking around without a bank account.
WHAT BARRIERS DO PEOPLE FACE AND WHAT NEEDS AREN’T BEING MET?
PHILIPPA: We’ve talked about the what and the who. Should we dig a bit more into the why and the how that groups might run into these problems? Some people are excluded because they’ve tried and they’ve been turned away. Others, I think it’s fair to say, are effectively excluded because they choose not to use financial services. Why would people do that?
EMMA: I think some people might be sceptical of financial services. It’s seen as a very wealthy club. In Britain, our culture is not to talk about money. That all means that people, whether it’s an actual choice or it’s more a fear and confidence thing, they do choose to maybe not participate.
NINA: If I could add to that? What we often find in immigrant communities in the UK is people prefer to use cash and they prefer to have it with them. We refer to this mysterious box under the mattress where Granny has all of her cash just sitting there, right? And people say, ‘oh, that’s ages ago now’ and, ‘people don’t do that anymore’. But we still find that people actually do and there’s a certain reluctance to trust financial institutions. When I talk to immigrant communities, often people of colour, they say it’s due to the fact that they’ve been discriminated against in some shape or form in the past. I’ve spoken to people who’ve applied for a loan, they’ve been rejected and because of that there’s this feeling of shame. They say, ‘right, well I don’t want to interact with the bank ever again’. They just decide to live in cash-based economies that aren’t part of our formal economy here. Also, we’ve talked about religion. There’s approximately 3.87 million Muslims living in the UK. So there’s a broad spectrum of reasons why people don’t want to engage with the formal financial system.
PHILIPPA: Yeah, the Shariah thing is interesting. We made a podcast about Shariah finance last year actually. And as you say, loads of financial services are just not set up for that yet. But Matt, I know you’ve done a lot of work at PensionBee about accessibility for people with disabilities, haven’t you? What sort of challenges do they face?
MATT: Sadly, they face similar challenges to those they encounter in other industries. The world has moved online and that brings its own particular challenges. The way technology moves is quite interesting to think about. If you’ve got to go to a building, that’s a mobility issue, if you physically find it hard to get there. If you’re doing something over the phone and you’re hard of hearing, that’s a problem. Now the world has the internet and apps, and if you’re visually impaired, that’s a considerable barrier. So a lot of the work we’re doing at PensionBee’s around trying to utilise the latest technology to help those people because, by and large, having apps and the internet is fantastic. For example, if you do have mobility issues, for instance, suddenly the world’s opened up to you because you have so much power in the palm of your hand. But yes, of course, it’s really dependent on your particular disability and your particular situation.
PHILIPPA: And equally, if you’re a person who doesn’t want to use handheld technology, like phones - I’m thinking of older people here, but it isn’t necessarily older people is it? It can be all sorts of people. That’s an issue, isn’t it? Because obviously bank branches where you can go and talk to someone in the flesh, face-to-face, they’re disappearing, aren’t they?
MATT: They are.
PHILIPPA: There’s a movement towards shared banking hubs, isn’t there? Is that a good solution?
NINA: I think it’s a tough one. I’ll give the example of my Co-Founder and our CTO at Bloom. He’s living in North Wales, in a small village, and he’s gone to look after his Mum and his Grandma. The last High Street bank closed and they said, ‘well don’t worry, we’re going to do a mobile van for you and everyone can do their banking through the mobile van’. And they said, ‘OK, let’s try it’. But the problem is the mobile van, for whatever reason, sometimes can’t make it because there’s traffic or something else, and just doesn’t show up. Or it’s only available on certain days, at certain times. So what happens if you’ve caretaking responsibilities and you can’t make it down to the van, or you’re working during that time and you’re not off shift yet and you can’t go to the van? There are definitely areas for improvement. I’ve seen there’s a partnership with a company called OneBanx where they’re trying to have multiple banks represented in one physical space. I’m very keen to see how that plays out because at least it’s a physical space and people can speak to a human being representative. But that remains to be seen.
EMMA: I think the vans are really a bit mad because, like you say, there’s so many problems with them. And actually, if you just want to do basic cash withdrawals and cash deposits, you can do them in the Post Office. I think there’s about 11,000 Post Offices still in the UK. The van thing’s a bit odd. I think the shared branch idea is interesting. There’s only four of them open. It’s a new initiative and there’s plans to open 38 more. A fairly large number, but similar to your example, I’ve got an Aunt and she’s 90 now, and sadly she lost her two siblings last year. So she’s now left to look after everything. She’s never had children. And as you mentioned about everything moving online, she’s never had the internet and wouldn’t have a clue. She’s never had a mobile phone, not at all. All her bank branches have shut, but she’s stuck in this interesting quandary where she would happily transact over the phone, but how do you find the phone number?
PHILIPPA: Oh yeah.
EMMA: How do you find the phone number when you can’t go to a branch, you haven’t got an app, you haven’t got the internet and you haven’t got a debit card? She’s never had a debit card, she’s never been interested in that. She’s always worked with cash. She literally cannot find that phone number. Finding phone numbers is almost impossible without the internet.
PHILIPPA: Yeah. And the digital thing, there are a lot of people like her, who prefer cash, but a lot of that generation still like cheques and they’re basically gone aren’t they?
EMMA: It’s so bizarre to me. I feel like cheques just passed me by. I feel like I saw one, at one point, in about 2010 and then have just never dealt with them since. It’s really weird.
MATT: Maybe from the Grandparents at Christmas time? You used to be quite appreciative of that. But as the years went on you started thinking, ‘oh no, not a cheque. What do I do with this?’
PHILIPPA: Matt, we spoke a lot in the last episode about the disadvantages that women can face financially depending on their relationship status. It’s the same with accessing finance, isn’t it? 742 million women all over the world are outside the formal financial system. Do we have a number on what’s happening here in the UK?
MATT: I know the difference between pot sizes for men and women is 39% across the UK, which is an incredibly disappointing figure. At PensionBee we’re thinking about that quite a lot at the moment, and what we can possibly do about that. You have to look at the causes of it and that’s actually very difficult to unpick. We do have a gender pay gap, that’s an issue, but it’s not 39%. That’s a huge figure. We know that women are often primary carers, be it for children or for adults. So quite often they drop out of the working environment for some time, if not more permanently. I think it’s a very complicated subject, one that we’re really just trying to get to grips with now.
PHILIPPA: Nina, you talked about credit ratings at the top of the podcast. As you said, it really damages people’s ability to access financial services. That might be because you’ve fallen into debt in the past, which is kind of a separate issue. But it’s that thing about a small credit footprint, I think it’s called. And that’s a lot of people isn’t it?
NINA: Absolutely. I think often about my mother-in-law, she was briefly a farm secretary and then took over running the household, and I believe she had a joint account with my father-in-law. So she never actually established a credit file for herself.
PHILIPPA: So she’s invisible?
NINA: She’s credit invisible. And it wasn’t until one day she decided, ‘I want to have a credit card, I want to have a bit of agency in this household’. The options that were available to her were predatory quite frankly. There are everyday people who are credit invisible because they perhaps have never tried to get credit.
PHILIPPA: Young people for example, when you leave home you’re credit invisible, aren’t you?
EMMA: And again, culturally, if you grow up in a less wealthy household, credit can be seen, and was definitely seen in my family, as a very bad thing. You didn’t borrow money. You saved and you lived within your means. So when I went to university, I remember being terrified of getting a credit card because it was drummed into me that you don’t borrow money. Because it’s scary and you mightn’t be able to pay it back and then bad things happen.
NINA: Funny that you had that reaction because in my experience, and I’ve spoken about this publicly before because I’ve gotten over the shame of it. When I went to university in the USA, the banks could still set up shop on campus and say, ‘come and get a credit card’ to any random person on campus. Now they can’t anymore thanks to the Credit Act. But I was offered a credit card and I thought, ‘amazing, free money, I love it’. And of course, I didn’t read the small print, which said it’s 0% interest, but only for 18 months. And so here I was going, ‘free money, la la’, buying the most ridiculous and unnecessary things, especially since I was living in a dorm, and then realising, ‘uh oh, I have to pay this back’. And by then it had snowballed. I think at its peak, it was about $10,000 of credit card debt. And it followed me around. I’ve talked about this before but there’s so much shame that comes with it. I thought, ‘right, I’m never touching credit again’. But then when I moved here I thought, ‘well I’ve got to get a credit card, haven’t I?’ to build that credit score!
EMMA: It’s weird.
NINA: It was a bit traumatic actually, applying for that credit card and thinking, ‘oh gosh, I’ve got to lock it away or put it in a drawer so I don’t use it’.
EMMA: I remember when my boyfriend and I bought a house together, we’ve had the house for a long time now, but I remember when we were buying that house, he didn’t have the best credit rating. In a prior relationship, his ex-partner had got into debt from what I remember. I remember the worry and the panic of thinking, ‘are we going to be able to buy a house?’. And he was worried about whether it would affect my credit rate because I’d, by that point, worked on it. To be fair, I didn’t really understand how it would impact me. That’s the other thing, again, going back to education and understanding feels like a bit of a dark art sometimes - a credit rating. People don’t really understand how those joint relationships affect it. If you’ve got into bad credit, how do you get out of it? If you’ve got no credit rating, how do you build it? It does seem to be a knowledge gap for sure.
PHILIPPA: And that’s going to apply to all sorts of people. Divorced people and newly independent people. As you say, this business of being affected by previous relationships that you mightn’t have had the agency about. Is there anything to be done about that? What do you do about it?
NINA: I wish I had a magic wand.
EMMA: I was going to say, that’s why we’re discussing it, right? Because it’s really hard.
EMMA: I genuinely don’t know, beyond checking my credit score, how I would go about fixing it.
NINA: I think one of the things that I’ve had to do, I’ve talked often about how I’ve money dates with myself and they’re the most dreaded dates.
PHILIPPA: This isn’t a fun date?
NINA: Maybe I’ll pour myself a glass of wine and say, ‘right, let’s just get through this’. But I came to realise that one of the credit rating agencies, I have no idea why, said I had a terrible credit rating and the other two said I was in good standing. I started going through and I realised that it had my address as a place that I lived three or four years ago. So whatever was going on with that particular residence was negatively affecting me. There’s usually a link on the websites of the credit rating bureaus where you can file a correction. It’ll take ages and it’s very paperwork heavy, but I highly recommend having a quick audit and looking to make sure. Sometimes there are duplicates or if you have a common name, you might be confused with someone else. So it’s always worth doing that and just having a quick check to make sure that everything is above board, and as it should be. But I don’t think there’s a silver bullet for it.
EMMA: And even accessing those credit agencies can feel hard, because it’s not always obvious that there’s a free way of doing this stuff and the first thing that’s presented to you is…
NINA: Pay £15 a month!
EMMA: Yeah, for each single agency and like you say, there’s three main ones in the UK. That itself can feel like a barrier to a lot of people. That’s going to be £70 before we’ve even started.
PHILIPPA: That’s the thing, low income. This is a running issue with all these exclusion issues. Because now I’m thinking about contents insurance. I was reading the other day, about three million British households, this is social housing, don’t have contents insurance. But they’re twice as likely to be burgled than people living in privately owned homes. It just highlights how vulnerable people are.
EMMA: So the FSCS can actually compensate for insurance failures, like if an insurance company goes out of business. It wasn’t contents insurance, but we had a failure about a year and a half ago now, at a large insurer that went out of business, and there were about 120,000 policy holders on the books. It was motor insurance, rather than contents. But it actually transpired, as we went through this failure, that most of them were motorbike insurance. So motorbikes, scooters, mopeds, that kind of thing. And again, as we dug into it further, those policy holders had been insured by that company because it was by far the cheapest and they literally couldn’t afford another policy. Digging into that further, they were using that policy for business. They were using it because they were takeaway drivers, bike couriers, etcetera. So that insurer went pop, we could pay people what was left of their premiums. So if they had a years cover and they had six months left, we’d give them that money back, but then they couldn’t access insurance because there was no other provider offering anywhere that value.
PHILIPPA: That’s a market failure.
EMMA: Overnight, they were excluded from not only being able to insure their vehicle, but being able to work because of that one failure. Like you said, those are the people that don’t have the resilience to change that situation, get another job or whatever. I think insurance’s a very hidden expense. We don’t talk about that with exclusion a lot, but it’s really important.
PHILIPPA: Particularly when you’re high risk.
HOW DO WE IMPROVE ACCESS TO FINANCIAL SERVICES FOR THOSE IN GREATER NEED?
PHILIPPA: Matt. we’ve laid out a lot of problems here, haven’t we? Should we talk about solutions? Financial education, it’s a running theme on this podcast. We’re always happy to talk about it again because it’s really important isn’t it? We’ve got 11 million adults in this country with what’s called ‘low financial resilience‘. That’s the sort of thing we’ve been talking about, there’s just no cushion when things go wrong. 12 million are lacking the digital skills to access the sort of platforms and products that we’ve been talking about. That’s open banking, using a phone, apps, all that sort of stuff. It’s a big problem, isn’t it?
MATT: It’s a huge problem, absolutely. Where do I start unpicking that one really?
PHILIPPA: Should we start with the government? I’ve read their latest report on this. Financial inclusion is supposedly a priority, isn’t it? They’re talking more in that report about financial education for kids. Is it happening?
MATT: Not that I’m aware of. I haven’t been to school since the eighties and nineties. I’m aware that it’s supposedly better than it was then. Financial education back then started and ended with adding and subtracting. There was really nothing beyond that.
PHILIPPA: I mean this is the road we’re on, isn’t it? App-based financial services. We’re doing everything on our phones. There’s no turning that around, is there? But as you say, the pitfalls are there. The opportunities for fraud, people making mistakes and digging themselves into holes that they don’t really fully understand. On the other hand, of course Matt, forms and paperwork, they had their problems too, didn’t they? And they still do.
MATT: Exactly. Yeah. We’ve subtly changed where the problems lie and how we understand them, but they still exist. I think overall it’s extremely positive what’s happening in the technology space. Internet and app-based access to finances. But it does come with certain risks and I think just general understanding and knowledge about what it is you’re playing with here. Because it can feel like playing. You download an app, you’ve tried it out and then suddenly you’ve done something you didn’t fully understand. You’ve accepted the terms and conditions and off you go. And yes, there quite often aren’t the guide rails in place to help you understand what you’re doing.
PHILIPPA: That’s the balance isn’t it? Obviously PensionBee has an app. All organisations in this space have the same issues, you want to make it convenient, quick and easy to use, but those safety nets do need to be there don’t they? For you and for the customer.
MATT: Absolutely, yes.
EMMA: I think what you said about terminology’s really, really important and that’s something that we’ve. . .
PHILIPPA: Jargon. We’ve done a podcast about that too.
EMMA: So a lot of companies, ours included, have gone through the Plain English Campaign and Crystal Mark. We’ve been working with a company called Plain Numbers recently, which is the numerical equivalent of that, which is helping people to understand when we give them compensation calculations and things like that. But what I found really difficult goes right back to what we said at the beginning. Financial services is full of, at a very senior level, wealthier people from wealthier backgrounds and higher educated backgrounds. Getting them away from the mindset of - big complicated language equals higher value, ‘I look better, I sound more important’, is so difficult. I think that’s why your fintech companies have done, in my view, a better job of that because they tend to be founded and run by younger people, less are from those wealthy backgrounds, less are from those traditional industries. You’re more aware of the benefits of doing this stuff well.
MATT: We see that at PensionBee for sure. When we get feedback from people, it’s not, ‘oh your app’s fantastic, I can do this and that’. It’s, ‘oh, you explained this in a way I understood’. How simple is that? So much of the finance industry still communicates in a b2b fashion. When actually they should be working b2c.
PHILIPPA: Business to business rather than business to customer? Talking of jargon!
MATT: Sorry. You see, it’s so easy to do!
EMMA: It’s so easy to do though. A lot of people have worked in financial services for a long time. I remember when I first got my job at The Building Society, which is the first financial services company I worked for. The very first thing I was asked was, ‘how did you get this job? You’ve not worked in finance before’. And it really opened my eyes to that revolving door of people who have always worked in the industry. And it wasn’t meant maliciously, it was a genuine question. The thought process was that most people tend to go into the industry fresh out of university, then that’s all they’ve ever done. I think that’s why using jargon becomes so easy because they’ve been doing it for so many years, and then they’re trying to include people who’ve never been through the door.
PHILIPPA: So that’s a recruitment issue, isn’t it, for everyone in this sector? It can’t just be people who come from those sectors. There has to be people that don’t because otherwise, how else are you going to help others that just don’t know what those terms mean?
NINA: If I can just add to that note of who’s actually building the product. I think a lot of the problem is about who’s making the decision about what a product or service is going to look like. And Emma, you’ve spoken about Progress Together. This idea of having a more diverse workforce in financial services that actually reflects the broader population. I think often about different financial exclusions. We haven’t talked about gambling, right? That was a shock to me when I moved to this country. The betting shops are everywhere. The number of people who’re at risk, or have terrible credit scores and can’t get a mortgage because they’ve gambling transactions in their bank accounts. They can find it really difficult to come back from that. Well, someone, I assume, at Monzo Bank had lived experience of that and built a feature where you could actually block gambling transactions. That’s now become ubiquitous across banks in the UK. I think often about same-sex couples who’re trying to get a loan for surrogacy or adoption. We often don’t think about these things if we’re not part of that community. If we had more same-sex couples working in banks who understood that, actually, it’s really hard to fund something when the NHS isn’t covering it and, for example, they just want to have a child. How’re we going to build that product for them? I’m very, very bullish on this idea of a more diverse workforce that can build better outcomes for everyone else.
PHILIPPA: OK. As you say, lots of work still to be done, but a great discussion to remind us all just how important financial inclusion is. Thank you everyone.
NINA: Thank you so much for having us.
MATT: Thank you.
EMMA: Thank you.
PHILIPPA: A final reminder. Everything you’ve heard on this podcast should not be regarded as financial advice. And whenever you invest, your capital is at risk.
Next time - how the pensions industry is trying to be a force for good in society. We’ll be talking about impact investing. What it is and which companies are leading the charge on the world’s greatest environmental and social issues. And Nina is cheering in the background. She’s a big fan.
Further ahead - we’re looking forward to seeing you at our live podcast recording on Thursday 4 May. It’s at White City Place in London. We’ll be talking about saving and whether your money’s better off in an ISA or a pension. We’ll be joined by special guests: Founder of Money to the Masses; Damien Fahy, Financial Expert and Host of The Conversation of Money Podcast; Peter Komolafe, and Consumer Editor of the Financial Times and Presenter of the Money Clinic Podcast; Claer Barrett. Don’t forget to sign up for your free ticket via the Eventbrite link in the episode description. In the meantime, please rate, review and share this episode, and subscribe on your podcast app so you never miss another one. Thanks for being with us.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.