Around two million UK adults do not have a bank account. Step back to look at the rest of the world and the figure is closer to two billion. And without bank accounts, individuals may struggle to borrow at affordable rates, buy insurance or save for retirement. Or to put it another way, a bank account is a gateway to a wider universe of financial services. Exclusion from that universe often has a profound impact on quality of life.
Britain’s rapidly growing Fintech (financial technology) sector has the potential to address at least some of the problems that lead to financial exclusion. And this month, equity crowdfunding platform Crowdcube has announced plans to offer a £500,000 support package to Fintech startups that focus on financial inclusion and accessibility.
Founded in 2011, Crowdcube was one of the early success stories of Britain’s Fintech sector. As originally conceived, Crowdcube enabled people who were not necessarily wealthy to invest as little as £10 in return for shares in startup companies. Since then, nearly £219m has been raised through the platform, which currently has more than 350,000 registered investors.
Crowdcube’s Thrive for Fintech initiative sees the platform teaming up with investor, Green Shores Capital, accountancy firm, Deloitte and law practice, Linklaters to offer up to three Fintech companies a share of an award that pulls together £500,000 in investment cash, legal advice and help with accountancy issues.
Promoting the Positive
According to Crowdcube co-founder, Luke Lang, the aim of the award is to actively promote inclusion in the financial services sector.
“The Fintech sector as a whole is making significant strides in tackling the challenge of financial inclusion and capability. We are particularly excited about what this programme can achieve in driving positive change in financial services,” he says.
But what does that mean in practice? As Lang sees it, financial inclusion has been driving force in the UK’s financial technology revolution.
“It has been a popular theme,” he says. “Fintech companies have set out to disrupt the market and deliver greater inclusiveness. For instance, Monzo has said it is targeting banking for the masses.”
For its part, the Crowdcube award is intended to shine a spotlight on upcoming entrepreneurs who have their own plans to deliver better, more inclusive services to consumers. “The focus will be on the UK market but many Fintech companies will want to scale up internationally,” Lang adds.
The Inclusion Problem
It has to be said that Fintech businesses – at least those that succeed in catching the eyes of potential investors – are not short of finance opportunities. According to figures published by the accountancy firm. KPMG, UK companies working in the sector attracted over £16bn in investment in the first half of 2018 alone.
So why is additional support needed for a corner of the UK technology market that is already a favourite with financiers? Well, one reason is that financial exclusion is a genuine problem, even in a country like the UK, which is already well served by the financial services sector. When the Government-funded Financial Exclusion Commission found that two million British adults were unbanked, it also discovered that those with no access to current accounts tended to pay what it described as a “poverty premium” amounting to £1,300 per year. On publication of its 2015 report, the Commission urged measures to ensure universal access to bank account services by 2020.
The Fintech Effect
And in theory, at least, Fintech has the potential widen access to a range of financial services. For instance, as Mike Smith, director of invoice finance intermediary Business Expert points out, cellphone-based systems are already making some financial products cheaper and easier to access.
“Fintech is going to have a tremendous impact on financial inclusion in the UK, firstly because while a proportion of people still don’t have bank accounts, nearly everyone now uses a mobile phone. As we can see from tremendously successful mobile payment apps in Africa and Asia, people who would before have been tied to money transfer systems like Western Union, often with punitive costs attached, now have a range of options to send money without needing a bank account,” he says.
Holly Andrews of Bridging Loans specialist, KIS Finance agrees.
“Fintech enables consumers to carry out a large number of financial transactions easily on their computers or mobile devices. This is massively helping those of us who are living closer to the breadline and having to really budget in order to get to the next payday. For example, there are mobile apps now that allow you to enter your monthly income, your definite outgoings and it works out how much spending money you have for the month. Technologies like this have helped consumers keep better track of their money,” she says.
But it may not be quite that simple. As Mike Smith adds, there are still knowledge gaps. Mobile phone ownership may be close to universal in the UK but that doesn’t necessarily mean that all consumers have the financial or technical literacy to fully take advantage of the app-based services on offer.
“Perhaps the biggest hurdle to greater inclusivity is the digital skills needed to navigate this new world,” he says. There is, he adds, an important role for education. “Digital inclusion charities like Citizens Online and the Good Things Foundation are doing good work in this regard.”
Fintech represents something of an unfinished revolution. Yes, fintech solutions are making it easier to budget, payments apps are enabling users to send money across the world at much cheaper rates than were previously obtainable, and traditional banks face competition from a plethora of digital-only challengers.
But many of the new services are not necessarily reaching beyond the tech-savvy millennials who are often the target. It’s debatable, for instance, how many of the new breed of digital-only banks attract (or want to attract) those who are currently unbanked.
So there is still a lot to play for and in that respect, Crowdcube’s initiative may well help to support companies that will solve at least some of society’s inclusion problems.
The finalists will be announced later this month.