Financial Inclusion - how the public sector can make a difference

Financial Inclusion - how the public sector can make a difference 

By Simon Hunt

What would you do with £1.5bn? This, says the Financial Conduct Authority, is the amount it raised in disciplinary funds during 2014 - an increase of 68% on the previous year. The money has now been passed to the Treasury.

Put those figures aside for a moment and think about a different question. Who can provide products and services to those customers who mainstream providers choose not to service? Typically, these are customers considered unprofitable or high risk. So how do potential alternative providers cope with these challenges? This is one of the fundamental issues at the heart of the debate about financial exclusion.

To bring these two thoughts together, is there a case for using some of that FCA money to support organisations serving excluded communities. You might describe such an arrangement as a subsidy from miscreant financial services businesses to customers they choose to ignore.

These type of arrangements don’t have to be hypothecated quite so clearly, of course. But there is inevitably going to be a need for government support for groups stepping into the spaces vacated by mainstream financial providers. These groups include, in one corner, the likes of credit unions (whose impact was brought to life at the recent BBA Better Banking conference), charities and not-for-profit providers, as well as, in the other, challenger providers, ranging from new banks to peer-to-peer lenders. All of these organisations are attempting to provide a solution in a marketplace that the traditional financial services industry has, to some degree, decided is uneconomic.

The other option is for the Government to spend money even more directly. For example, it could, if it was so minded, launch a publicly-owned bank – you might argue that it has already moved into the mortgage market given its underwriting of certain types of home loan.

More often than not, the UK’s approach is to steer clear of direct Government intervention in favour of support for private sector initiatives. And we already have many example of this, ranging from the Funding to Lending scheme to tax breaks for people who invest in very small start-up companies.

However, if we are to tackle financial exclusion, we may need to expand the breadth and depth of Government intervention. That probably means more money, even if the funding is distributed through partnerships and support schemes, rather than spent directly.

In an era in which we’re trying to once again roll back the frontiers of the state, this may feel a little uncomfortable. But if you think one of the basic objectives of any government is to ensure its citizens have access to basic services, then financial exclusion is an issue that should be close to the top of the public policy agenda. For more and more financial services now fall into the category of ‘basic’ – something that citizens can’t easily do without.

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