The CEO of the UK’s Financial Conduct Authority, Nikhil Rathi, stated in a speech in Glasgow last month that “there is a significant opportunity for technology to drive the solutions to financial inclusion.”
The World Bank finds that nearly a billion and a half people living in emerging economies don’t have access to formal savings and credit, which could be tapped into by the use of digital finance.
With this, according to a McKinsey report, digital banking has the potential to reach more than 1.6 billion new retail customers in emerging economies and to increase the volume of loans extended to individuals and businesses by $2.1 trillion.
For fintech firm Moneyhub Personal Finance Technology, financial inclusion today means that everyone has access to education and tools that can help them manage their day-to-day finances, erode debt, and build wealth.
The managing director of Moneyhub, Mark Horwood-James explains: “Financial education and literacy has typically been limited to those who already have established wealth or have grown up amongst it.”
Financial inclusion, he argues, means removing those barriers so that everyone has the capability to increase their financial wellness. It also means that everyone has access to financial products and services that are affordable and suitable.
Similarly, Rupert Lee-Browne, chairman and chief executive of payments at fintech Caxton, adds that financial inclusion “can be distilled down to the fundamental concept of ensuring universal access to money and financial services”.
“Everyone must be able to send and receive payments effortlessly,” he adds.
For Browne, this involves making banking services accessible to those previously excluded, “equipping younger generations with the necessary capabilities to thrive in a dynamic increasingly cashless landscape, and also showing consideration for older individuals who may prefer cash transactions and might find technology inaccessible.”
George Dunning, co-founder and COO of Bud Financial, also makes the point that financial inclusion means considering those who work with “non-traditional income patterns” such as freelancers and digital nomads, who may find their access to credit, loans, or wider services are restricted due to insufficient or inaccurate data.
“Financial inclusion in this new climate has to evolve, and we need to expand our focus on ensuring that all sectors of society have access to fair service,” he says.
In the same vein, Sage, a firm that provides accounting, financial, HR, and payroll technology for SMBs, says financial inclusion means offering “innovative solutions” for small to medium businesses.
Ayesha Ansari, director of data product management at Sage, says traditional routes “may offer limited options and may exclude members of the society such as sole traders, start-ups, or small businesses.”
In his speech in Glasgow, Rathi said: “AI has the potential to bring about a profound change in our way of life,” when it comes to financial inclusion.
At Bud Financial, the firm claims that it is using AI to enable simpler, more inclusive financial decision-making in the finance industry.
“AI and ML bring ever-growing capabilities to comprehend and analyse financial data, so financial institutions are increasingly able to integrate deeper insights into their workflows,” Dunning explains.
“This unlocks meaningful mass personalisation so that all consumers, regardless of employment status and credit history, can be fairly and accurately assessed by producing a holistic picture of their financial situation,” he says.
This is possible by simply assessing transaction data instead of traditional credit bureau data, he points out. “This can vastly improve access to financial services to sectors of society that have been locked out of this option by their circumstances.”
According to Dunning, the use of artificial intelligence also allows for less human error or bias in the credit decision process, “bringing enhanced transparency and objectivity to lending through data-driven assessment and ensuring that no one who ought to have access to credit is left behind.”
For refugees arriving in the UK, setting up a bank account comes with several unique hurdles, whether it be a lack of local credit history, the right documentation, permanent address, or form of ID to open a bank account.
Now, with digital banking, it is possible to open an account, enabling newcomers to land jobs or even get on a London bus — which are now all cashless.
“Opening a bank account in the UK is next to impossible for newcomers,” says Caxton’s Rupert-Lee Browne. “Especially if they belong to a nationality that requires extra verification.”
At Caxton, through a partnership with Talent Beyond Boundaries (TBB), it makes financial services available and accessible to skilled refugees who migrate to the UK for work.
Caxton primarily is a fintech platform that allows businesses to make payments including payroll, international transfers, and foreign exchange through an API that HR teams can integrate into their payment systems.
If an employer using Caxton hires a new employee, they can offer a Caxton card to pay them with.
“Using Caxton cards, employers are able to provide these new hires with immediate access to funds from the moment they arrive,” Browne explains.
“With many important and basic transactions having become card-based, such as contactless payments on public transport, these new migrants find our cards extremely useful to begin and build their lives in a new country.”
According to Horwood-James, Moneyhub works with its clients to develop solutions that help their end customers take control of and manage their finances, “at any life stage.”
“In turn, through the consent-driven data our clients can access via our platform, they can move forward with a truly customer-centric strategy where they can be proactive in offering more suitable products and services and avoid foreseeable harm,” he adds.
As one case in point Horwood-James says that if a borrower’s finances improved and the Loan to Value ratio on their mortgage changed so that they became eligible for a better interest rate, a lender should alert them to a more suitable product immediately.
This is a service that Moneyhub claims to provide through data-driven insights to offer a more personalised experience.
“Our platform is built on a suite of tools to aid financial inclusion; budgeting, forecasting, spending analysis, debt manager, emergency cash builder, first home saver, retirement modeller, pension finer and more.”
The firm also offers a rent recognition feature that allows users to build a credit score through rent payments recognised the same as a mortgage payment would be. Plus, it offers nudges on payday to remind customers to put any spare cash into savings.
“And we offer practical solutions such as true affordability checking or ongoing monitoring so that firms can be proactive in helping their customers make better financial decisions and achieve good outcomes.”
Sage’s Ayesha Ansari, says that “data will play a crucial role in opening more inclusive financial options.”
“Accounting and payroll software holds a uniquely rich set of data that provides accurate insight into the financial health and credit worthiness of businesses,” including historical performance, current position, and likely future performance.
“Not only can businesses have better opportunities to access finance, but they can leverage these advanced insights to find the most suitable financing option for them.”
Ansari explains that Sage focuses on “the importance of timing” when it comes to SMB financing.
One example of this can be seen with its smart invoicing tools that automate the invoicing process so that SMBs can get paid faster, avoid late payments and protect their cash flows.
Sage also partners with other firms that offer additional support services, such as Satago, which provides “informed risk analysis across the whole of the debtor book in real-time”, and fintech company, Swoop, “which helps identify cost-saving opportunities and streamline the funding process for SMBs.”
“SMBs are recognised as the backbone of the economy, accounting for 99.2% of total businesses and 61% of employment in the UK,” says Ansari.
“Improving financial inclusion for SMBs can have a significant impact on enabling more entrepreneurs to start their own businesses, allowing smaller businesses to invest and innovate which in turn will help create more jobs,” thus strengthening the economy.
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