Memorandum submitted by Services Against
Financial Exclusion (SAFE)
EXECUTIVE SUMMARY
SAFE is a community initiative, at Toynbee Hall,
in London tackling financial exclusion. It serves people experiencing
financial exclusion directly, gives training to other organisations
in financial inclusion; has developed resources like the Personal
Finance Handbook (among others); and provides strategic lead to
FIF (national Financial Inclusion Forum) which supports a range
of bodies working to promote financial inclusion.
Access to banking services
— Financial inclusion is a worthy objective
in and of itself. Added to this, Government policies encourage
individuals to take responsibility for their personal finances.
However, the financial services industry has no incentive to serve
low income groups. Individuals are caught between Government policies
on the one hand and, in many cases, an unreceptive industry on
the other.
— Previously unbanked people need additional
support to open and maintain accounts to ensure an adequate level
of financial inclusion is achieved. Services like those provided
by SAFE can empower people to make their own informed choice and
manage accounts well. SAFE has published "Banking the
unbanked—a snapshot" (November 2005) which draws
on its experience of helping people open bank accounts and makes
recommendations.
— Current product offerings and service
levels need to be improved upon if supply is to meet any additional
demand resulting from the Government and industry shared goal.
— A Post Office card account with increased
functionality could provide a potential solution and thought must
be given in advance as to how this account will be developed or
dropped post 2010.
Financial education and access to financial advice
— Building financial capability is
equally as important as access to appropriate financial products.
Given the increasing need for people to take responsibility for
their own financial futures there is a growing need to extend
financial capability work to reach those experiencing financial
exclusion. Despite wide ranging work in this field there is no
lead body for promoting both financial capability and financial
inclusion. A lead body could build a business case for financial
education, and ensure implementation of a national strategy.
— SAFE has produced resources like
the Personal Finance Handbook and a tutor guide for other community
organisations wishing to include financial education in informal
education. Further to this SAFE is currently working with the
London Metropolitan University to produce an accredited training
course for people wishing to deliver financial education.
Incentives and barriers to saving for people on
below average incomes
— Savings, even low level savings,
can act as a barrier to debt in a crisis. However, given the current
economic climate, low interest rates and the propensity to and
ease of borrowing (even if it is at a price) there is little incentive
for people on low incomes to save through the normal market system.
Incentivised savings schemes, like the Saving Gateway, are therefore
all the more important in fostering a savings culture among people
on low incomes.
— Savings cannot be dealt with in isolation
and thought needs to be given about the unintentional impact of
other policies (like increasing affordable credit) on people's
propensity to save.
Role of Government, the Financial Services Authority
and other bodies and organisations in promoting financial inclusion
— The role of Government is important
in ensuring financial inclusion is achieved. However, it is not
clear how Government initiatives work together.
— There is a need for a national strategy
for promoting financial inclusion which will ensure joined up
working among Government departments.
— There is a need for co-ordinated
long term strategic funding so that the impact of the Financial
Inclusion Fund is not lost and work is sustainable at the end
of the two year period.
— All stakeholders (public, private
and voluntary) are key, and have a responsibility, in making it
work. FIF is undertaking a range of activities which promote cross-sector
working and best practice.
Benefits of financial inclusion and the extent
to which financial inclusion measures can contribute to combating
poverty and reducing barriers to employment
— Money is pivotal to quality of life.
Financial inclusion means being able to use money appropriately,
and access tools for doing so. Financial inclusion is crucial
in combating poverty and barriers to employment—for example,
if a job cannot be accepted because it is dependent on the potential
employee holding a bank account.
— All forms of poverty impact on people's
lives, and often relate to money issues. Financial inclusion work
needs to be integrated into other social inclusion work so that
individuals are served as a whole rather than initiatives simply
addressing one aspect of a problem at a time (for instance health
and debt or tenancy sustainment and financial capability).
1. INTRODUCTION
TO SAFE
a. SAFE tackles financial exclusion across
London by providing services which increase financial capability,
facilitate access to financial products and tackle overindebtedness.
Alongside its direct service provision for clients, SAFE provides
training about financial inclusion to other public, private and
voluntary sector organisations. In the last year SAFE has trained
202 organisations. SAFE also offers strategic lead to FIF (the
national Financial Inclusion Forum). FIF's strategic objectives
(among others) include: bringing cohesion to the financial inclusion
sector; supporting excellence among practitioners and informing
financial inclusion work and policy; extending financial inclusion
work into other sectors; and stimulating new financial inclusion
work. FIF does this through a range of vehicles. More information
can be found at www.fif.org.uk. FIF is a membership body (from
July 2005). Membership currently stands at 280 and continues to
grow.
b. Following consultation with SAFE's team
please note the following on Treasury Committee inquiry points
1, 3, 4, 5 and 6:
2. ACCESS TO
BANKING SERVICES
(COMMITTEE INQUIRY
POINT 1)
Context
a. Access to banking services is particularly
important in facilitating financial inclusion. Moreover the Government's
Direct Payment initiative, and the increasing use of Automated
Credit Transfer for wage payment has increased the need to access
transactional banking services. However, banking is not a utility
and as such no individual has a legal right to a bank account.
Access to banking services relies largely upon appropriate product
and service provision of financial services providers.
b. Generally, the financial services industry
is not set up to cater for people on low incomes or in need of
additional support to open or maintain a bank account. The individual
is caught between Government policies on the one hand which encourage
them to access financial services, and the industry on the other
which has little incentive to serve them.
SAFE's activities
c. SAFE helps people on low incomes open
and use bank accounts. SAFE has collated some of its data and
experiences of working with financial institutions at a local
level, publishing "Banking the unbanked—a snapshot"
in November 2005. This information provides a useful insight into
the institutional barriers faced by the very hardest to reach
groups and informs the debate about access to banking. A downloadable
copy can be found at www.fif.org.uk/news.htm.
d. The report launch has been be used as
a platform to make a series of recommendations and calls to action
to the banking industry, British Bankers Association, Financial
Inclusion Taskforce and other interested parties. Based on SAFE's
experiences, the snapshot and service delivery (helping over 2,500
people in the last year to open accounts), we make the following
comments:
Direct Payment and Post Office Card Account (POCA)
e. Given its limited functionality, the
POCA does not promote financial inclusion in and of itself. Moreover,
although the POCA is intended to be a stepping stone to financial
inclusion, little work has been done to support migration from
this account to a bank account.
f. As originally proposed under the Universal
Banking Scheme a fully functional POCA, accessible through the
LINK network (offering free access to money, as opposed to charging
machines in the network), would provide a potential solution to
people for whom the current POCA has proved popular.
g. The Government has funded some work to
facilitate a transition to basic bank accounts for Direct Payment,
however there has been no work done on a national scale to ascertain
whether these accounts are maintained or support given to help
people maintain them.
h. While basic bank accounts offer varying
levels of service, people are still vulnerable to debt due to
charges liable on the account. There is little support available
for previously unbanked people to learn how to manage their account
and a lack of financial capability means the most vulnerable face
unaffordable charges, closed accounts (some banks close an account
after three failed direct debits rather than charge) and bad experiences
which are likely to hinder inclusion at a future time.
i. The POCA contract comes up for renewal
in 2010. If this contract is not renewed, work needs to be undertaken
well in advance of this date either to design a fully functional
POCA or begin support for the transition to basic bank accounts
of a large minority of vulnerable benefit recipients whose only
account is a POCA.
Basic bank account product and service provision
j. As both SAFE's and the Banking Code Standards
Board's experience shows, people experiencing financial exclusion
receive varying levels of service when they visit banks.
k. Product and level of service provision
can act as barriers to entry or penalise basic bank account clients
unnecessarily. Moreover some banks discourage access to other
financial products and services and therefore fuller financial
inclusion. For instance, at some banks, basic bank account customers
cannot apply in the branch for the account and must send their
documentation through the post to a central processing unit, rather
than having it verified in a branch and copies taken. Many branches
also refuse counter access to basic bank account customers who
are most likely to be in need of additional support.
l. Inconsistent implementation of money
laundering guidelines can still act as a significant barrier to
people without traditional forms of identification. Added to this,
bank pilots whose aims are to reduce fraud may often unintentionally
have a side-effect of rejecting more basic bank account applicants.
m. Recent Joint Money Laundering Steering
Group guideline reforms are unlikely to have a huge impact on
this situation since the use of one form of identity relies upon
the use of a primary form of identification (eg passport) which
people experiencing financial exclusion are usually unable to
provide in any case.
n. Whilst banks do engage in individual
community initiatives, it may be helpful for the industry to engage
more widely with the communities (housing associations, council,
colleges, social workers etc) within which it works so that alternative
forms of identification can be accepted.
o. Working with the Corporate Social Responsibility
divisions of banks has had varying degrees of success in supporting
vulnerable clients access accounts (see Pre Budget Report 2004).
However, without access to bank data, it is difficult to build
a business case as to why benefit recipients might be financially
viable future customers for banks. In order to offer a sustainable
solution at a national level, Government needs to work closely
with banks to create a product and service that will meet consumers'
needs.
The Financial Inclusion Taskforce objectives
p. The banks and Government shared target
of reducing the 1.9 million households in the UK without a bank
account is laudable but thought needs to be given as to how the
hardest-to-reach and most vulnerable groups in particular will
be reached within this goal.
q. Despite this shared goal being a key
objective of the Financial Inclusion Taskforce there is no allocation
of funds within the Financial Inclusion Fund to support this work.
r. There is a lack of transparency about
the way the entire Financial Inclusion Fund is being allocated
and we would welcome an allocation of the remainder of the fund
to developing this particular objective, especially given the
Government's own commitment to this shared goal.
s. Whilst SAFE agrees with the Taskforce's
principle on facilitating access that there is some need to stimulate
demand for appropriate banking services (for instance, raising
awareness and ensuring people are empowered to make informed choices),
any activity arising from this statement needs to fully engage
the financial services industry to ensure that demand is met by
supply at a local level (good product and service provision) and
not frustrated.
3. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
(COMMITTEE INQUIRY
POINT 3)
Context
a. Action to achieve financial inclusion
rests on two key fundamentals: providing access to appropriate
and affordable products and building financial capability. Without
adequate levels of financial literacy individuals do not have
the necessary skills, knowledge or confidence to make informed
choices about their finances and are unlikely to be able to ask
the right questions when receiving financial advice.
b. It is generally agreed that financial
capability is lowest among people experiencing social exclusion
and deprivation. The poorest therefore pay the most as they navigate
the financial services system.
c. Whilst information and help does exist
for more mainstream groups (such as that provided by the FSA and
other sources), people experiencing financial exclusion are less
likely to be aware of them or have the confidence or skills to
make sense of them.
d. However, an increase in the need for
people to be able to take more responsibility for their finances
(through initiatives like Direct Payment, direct payment of housing
benefit and introduction of the Child Trust Fund) means that there
is a growing need for independent and free money matters support.
Within a coherent strategy for financial inclusion such initiatives
could form an opportunity for the Government to create a better
informed and confident consumer base.
SAFE's activities
e. SAFE delivers financial capability training
throughout all its streams of work to promote access to financial
products and tackle overindebtedness. SAFE does this through free
formal and informal education sessions as well as in one-to-one
appointments. In particular, when accessing products, SAFE uses
a framework which leads the individual to make their own informed
choice. This is essential in building skills which can be transferred
to other situations and also in empowering the client.
f. Alongside service provision for clients
SAFE has developed resources: the Personal Finance Handbook, published
in partnership with Child Poverty Action Group; and a tutor guide
for community groups wishing to deliver informal education.
g. There is a growing need to train people
in this field so that financial capability work can be extended
and quality assured, but also so that it can be incorporated into
other work with individuals (eg housing resettlement, debt advice
etc). To this end, SAFE is working with London Metropolitan University
to provide accredited training for people wishing to deliver financial
education. This will sit alongside the ifs qualifications in personal
finance and the Basic Skills Agency training for its own tutors.
Co-ordination of the sector
h. Whilst the FSA has taken some responsibility
for building financial capability its future efforts are to focus
on mainstream groups of people. There does not appear to be any
clear attempt to promote financial inclusion. Moreover, where
it has been doing some work with groups that would fall into this
category (such as NEET) this is proposed to be dropped.
i. Currently the financial capability sector
is diverse, uncoordinated and varying in quality of delivery.
Both financial inclusion and financial capability sectors would
benefit from a significantly stronger lead body with a clear remit
to promote financial inclusion within its work. Such a lead body
should be tasked with building a business case for financial education
as well as developing a national strategy for implementation and
ensuring sustainability.
Financial advice
j. There is an increasing need for generic
financial advice as well as affordable financial advice. SAFE
supports any steps which can be taken to increase availability
and accessibility of these among hard to reach and low income
groups.
k. The Treasury Select Committee may wish
to consider ways in which the industry could support a pro bono
advice service in alliance with community organisations, similar
to that which is provided within the legal profession. Similar
initiatives have been trialed by Citizens Advice (report published
December 2005) and AXA Financial Services (being piloted in 2006).
4. INCENTIVES
AND BARRIERS
TO SAVING
FOR PEOPLE
ON BELOW
AVERAGE INCOMES
(COMMITTEE INQUIRY
POINT 4)
Context
a. Given the current economic climate, low
interest rates and the propensity to and ease of borrowing (even
if it is at a price) there is little incentive for people on low
incomes to save through the normal market system.
SAFE's activities
b. SAFE supports incentives for people on
low incomes to save. Even low level savings can act as a barrier
to debt in a time of crisis. Savings also provide further life
opportunities and promote positive attitudes towards money management.
c. SAFE was one of five organisations involved
in the successful piloting of the first Savings Gateway (SG),
and has supported HM Treasury with the final drive and support
of clients in the second piloting in 2005.
d. Clients accessing the SG benefited from
the simplicity of the scheme, finding the language and conditions
easy to understand and therefore accessible (the first scheme
offered £1 for £1).
e. The role of SAFE (as well as the outreach
and one-to-one support in accessing the scheme) was vital for
many clients who do not hold the more traditional forms of identification
for the account opening necessary for SG. SAFE was able to act
as a bridge between clients and the bank to overcome this and
other barriers around language, literacy and lack of confidence
in banking.
f. In follow-up with clients, SAFE looked
into the primary reasons clients saved with the scheme. These
included that it was "too good to be true" and because
they were saving for something in particular (which this scheme
could help them achieve) such as a computer for their children's
studies or to begin a fund to set up their own business.
Saving and borrowing
g. Savings schemes like SG appear to be
dealt within isolation. In SAFE's view it is key that the Government
begins to bear in mind the unintended impact on individuals' propensity
to save of other Government policies, such as widening access
to affordable credit. Whilst an overarching and appropriate aim
of extending affordable credit may be to protect consumers from
more expensive forms of credit, without placing restrictions of
any kind on the expensive forms of credit, widening access to
affordable credit is likely to lead to a simple increase in use
of credit. The Government with the Financial Inclusion Taskforce
should consider how it intends to limit use of expensive forms
of credit in favour of affordable credit. It should also consider
how it will evaluate the impact of increasing affordable credit
on levels of saving and overindebtedness.
h. The need for incentivised savings schemes
like SG becomes more significant if a savings culture is to be
fostered among low income groups.
i. There is a need for debt advice to address
longer term solutions to debt (as well as offer crisis intervention)
and support clients through on-going debt support, generic financial
advice and financial education.
5. THE ROLE
OF THE
GOVERNMENT, THE
FINANCIAL SERVICES
AUTHORITY AND
OTHER BODIES
AND ORGANISATIONS
IN PROMOTING
FINANCIAL INCLUSION
(COMMITTEE INQUIRY
POINT 5)
Government co-ordination
a. The Government itself has highlighted
the importance of financial inclusion and SAFE welcomes its recent
commitments and indeed this inquiry which ultimately supports
financial inclusion and the improvement of individuals' lives.
b. SAFE's one key concern about Government's
role is that whilst there are a number of different Government
initiatives to promote financial inclusion and/or capability it
is not clear how these initiatives link together or are coordinated.
There does not appear to be any national strategy for ensuring
financial inclusion is achieved.
Funding
c. Funding continues to be a significant
issue for organisations dealing with financial exclusion and it
would appear to be within the Government's responsibility to consider
ways of developing a strategy for sustainable funding of this
work.
d. Whilst the Financial Inclusion Fund is
very welcome it is short term; and different portions come on
line at different times, administered by different government
departments which does not support holistic service provision
or joined up thinking across the different areas.
e. The administration of the Financial Inclusion
Fund does not appear to fit into a wider Government funding strategy
or link to other funding streams (for instance, Phoenix Fund,
DWP funding for access to banking and pre-retirement planning,
Legal Service Commission or other funding for debt advice provision
etc).
f. The Growth Fund is subject to state aids
clearance and considerable restrictions in its use. However, there
does not appear to be any national strategy, other than the Growth
Fund, to support a national scale up of third sector lending (which
should include training, risk management etc). Without a framework
for scaling up third sector lending SAFE questions the usefulness
of the Growth Fund in the long term.
Joined up working
g. Solutions do not lie solely with Government,
industry and regulators. Intermediaries such as housing providers,
employers and community organisations like SAFE also have an important
role to play. Genuine joined up efforts are needed to ensure that
financial inclusion becomes a reality.
SAFE's activities: FIF (Financial Inclusion Forum)
h. FIF has begun a mapping exercise of financial
inclusion projects across the UK which will go some way to ensuring
a picture of financial inclusion work can be built up.
i. Through its national, thematic and regional
events FIF also brings together policy-makers, practitioners and
funders to ensure information and experience is shared as well
as best practice promoted.
j. Through its recent Mid-Winter Forums
FIF has sought to raise awareness of financial exclusion particularly
among civil servants who are writing or implementing related policies.
k. FIF is supported by an Advisory Panel
including the RBS group (who also provide additional financial
support), ABCUL, Barclays, Citizens Advice, CDFA, FINewcastle,
the Financial Services Research Forum, IPPR and the National Consumer
Council among others.
l. Further information about FIF's activities
can be found at www.fif.org.uk.
6. THE BENEFITS
OF FINANCIAL
INCLUSION AND
THE EXTENT
TO WHICH
FINANCIAL INCLUSION
MEASURES CAN
CONTRIBUTE TO
COMBATING POVERTY
AND REDUCING
BARRIERS TO
EMPLOYMENT (COMMITTEE
INQUIRY POINT
6)
a. Money is pivotal to quality of life.
Financial inclusion ensures people have access to the tools they
need and the necessary financial capability to manage their money.
b. However, lack of money is not the only
source of poverty people on low incomes may experience. Financial
inclusion and the extent to which it combats poverty and increases
employment chances must be seen in the light of how it interacts
with other efforts to improve social inclusion, health and a sense
of hope among people experiencing disadvantage. It is therefore
key that financial inclusion be integrated into other forms of
social inclusion work if it is to be most effective in combating
poverty.
c. In SAFE's experience there are clear
links between financial exclusion and employment: for instance,
stress associated with money problems can lead to a loss of employment,
which leads to further debt, which in turn can lead to the loss
of bank account which poses a barrier to re-employment. SAFE has
had clients who have had to turn down jobs previously because
they could not get access to a bank account. Financial inclusion
would therefore seem crucial in combating poverty and reducing
barriers to employment.
d. Financial inclusion initiatives need
to address the link between access to financial inclusion and
mitigating the costs of poverty. For example, without an understanding
of how to use a bank account effectively, consumers may miss out
of the chance of cheaper bill payment through direct debits. However,
incorrect use of such facilities (such as through a lack of financial
capability) can cause detrimental effects through charges or closed
accounts. Similarly, access to one's money through ATMs is undermined
when the only ATM in an area charges up to £1.50 per transaction.
January 2006
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