The UK’s financial inclusion strategy demands better tech

It looks like the UK’s first financial inclusion strategy is finally imminent.

The rising cost of living means over 44% of us are now financially vulnerable. That’s an absolutely frightening figure that means this strategy is long overdue.

Although the strategy sadly won’t be mandatory, it should add real urgency to efforts across the sector to make financial services more accessible, especially within larger firms that are already being driven to comply with the FCA’s Consumer Duty, which does have proper enforcement behind it.

Doubling the size of the community finance sector

Alongside expanding access to banking and making it easier to save money, affordable credit will be an big part of the strategy. That’s going to mean community finance and in particular, credit unions.

Credit unions offer much lower interest rates than the predatory lenders people with serious money worries otherwise turn to.

As the rising cost of living pushes us toward needing credit for any unexpected purchase, credit unions really do represent a compelling way to increase financial resilience with minimal downside.

But in the Payments Association’s analysis from earlier this year, Natasha Healy rightly points out that despite serving a city of nine million, the London Mutual Credit Union boasts a mere 36 thousand members.

If demand is so high, why is membership so low?

The answer is tech, and specifically KYC. We’ve seen the problem first hand through our own work in the credit union sector supporting firms like Right Way.

Where ID poverty comes in

The truth is there’s plenty of demand for fairer credit, but we’ve seen drop-off rates of 60% or worse during the process.

Identity and address verification is still clunky, expensive or simply impossible for the very people community finance exists to help.

Your passport might have expired, or you don’t have a device able to scan the chip. You might have a proof of age card, which is well known to retailers but often not accepted online. You might be asked for utility bills but have gone paperless years ago.

You might even be able to get through it all, given enough time and perseverance. But the payday lender’s website flashes a simple, enticing message: “instant decision, cash in bank today”.

This is what ID poverty feels like.

There’s 11 million people in the UK without a passport or driving licence that feel it daily.

Vouchsafe is working with superb organisations like incuto and Fair4All Finance to bring better technology to the community finance sector and help credit unions and other lenders safely onboard more members and approve more loans, faster.

Regardless of what the financial inclusion strategy says, the mission for us is clear. We need to make it as easy to get fair, affordable credit as it is to take out a payday loan.

We’re talking about these issues in our 12 November webinar, The Community Finance Growth Playbook, and sharing what works in more detail. Save your spot here.