“Opening a bank account is not enough”

By Shefali Roy

In the UK, if you wish to open a bank account you need proof of ID, such as a driving licence or passport, and proof of address such as a phone bill. There are 320,000 people facing homelessness across the UK, resulting in no address and no bank account. No bank account means these people can’t do the most basic things the rest of us often take for granted like using ATMs, purchasing insurance, building a pension, taking out a loan that doesn’t incur massive charges or paying rent.

But it’s not just people without a fixed address who are unbanked. According to The Financial Inclusion Commission, there are 1.5 million unbanked people in the UK. These people don’t have access to mainstream financial products or services due to a variety of reasons such as previous bad debt, an education gap, language difficulties, accessibility issues, or by simply not having enough money. Because these people cannot open bank accounts, they cannot change their circumstances – they’re stuck in a cycle of poverty and disenfranchisement that may not be of their own doing with very little light at the end of the tunnel.

50 percent of the 1.5 million unbanked people wish to be ‘banked’ but have no way of doing so. If we want to see real change in these numbers and, if we want to help eradicate poverty for good, we need to look at all of the different causes behind it.

More than 40 percent of all bank and building society branches closed between 1989 and 2012, and that trend is continuing around the world. Without physical branches, the only way people can open an account is online. But for those living in poverty, access to the internet is not something readily available.

Money management is a huge issue for those with and without bank accounts – it is a key reason why many do not and are not able to re-open bank accounts they may once have had. Recent research from digital challenger bank Pepper revealed that nine in ten Britons feel undereducated when it comes to personal finance with half believing it is their bank’s duty to help them make better financial decisions.

According to a report from digital current account provider Pockit, ‘Britons who do not have a bank account face paying up to £485 extra each year for bills and basic services.’ We’re looking at a situation where people who don’t have access to banks are being penalised for not having an account when banks should already be offering basic bank accounts to people in need. These penalties come from not being able to to pay for services like the internet by direct debit because without a bank account they cannot effectively save the necessary funds.

One traditional bank, HSBC, announced a partnership with homeless charities Shelter and Crisis, offering a basic bank account without proof of ID or address. It was seen as a huge step forward, giving homeless people the ability to open a bank account means they can claim benefits and be put on the housing list. It means they can receive pay and earn a living for themselves. It gives them the stepping stones to get off the streets.

And yet, while HSBC opening up basic accounts to those without addresses or ID is a great first step towards helping the unbanked, it doesn’t go far enough. It shows that companies are taking on board the steps they can do to help people from impoverished backgrounds to get jobs and housing so that they can prosper, but these steps should have already been in place.

It took HSBC over three years to announce the implementation of a scheme that the EU Payment Accounts Directive already set into motion. Specifically, the legislation states that ‘all UK banks have had an obligation to consider applications for a ‘payment’ account by any EU consumer equally and without discrimination. Where other accounts are unsuitable, including for those currently excluded from mainstream banking, a basic bank account will be provided.’

We’re in a position where HSBC announcing a partnership to allow something that could have been offered since September 2016 is cause for celebration. And where are the other mainstream banks throughout all of this? Offering accounts to the unbanked simply doesn’t appear to be a viable business model under current conditions. However, this view is probably because traditional banks are approaching the problem in the wrong way.

With nearly 40 percent of the globe unbanked, the opportunity for banking and financial companies who look to help these people is huge. In fact, helping with transitioning unbanked businesses and individuals into the banking and financial services sector could be worth more than $380bn in new sales revenue to existing banks, challengers and new entrants to the fintech market.

To truly help these under and unbanked people, companies need to understand the importance of focusing on education alongside easing the new bank account process. Open Banking is a major way we can quickly and efficiently help the unbanked open bank accounts but, more importantly, these banking apps can offer additional services to ensure they have the knowledge to maintain them.

While traditional banks remain slow at implementing new technology and services that could help the unbanked, there are a wealth of online personalised banking options available, with a large majority focusing on or at least including money management tools. By looking back at past expenses many of the apps allow customers to forecast for the month or even year ahead, helping to stop people falling into traps of overspending. None of these apps would be able to do that if they didn’t use Open Banking technology.

Open Banking allows new and old companies to focus on a personal approach to banking, opening the door to creating more services targeted at under or unbanked people. I believe it could be the solution to break the cycle of poverty and disenfranchisement by putting control back into the hands of those people who currently feel powerless.

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