Caroline Stevenson, Head of Financial Services Regulatory Team, Burness Paull
With the recent news that Dallas-based FinTech, Stretch, is creating a new type of bank account specifically targeted at inmates nearing their release from prison, it got me thinking about the position in the United Kingdom.
For a long time, financial inclusion has been a real interest of mine but I’m disappointed to admit that the prison population were forgotten by me. The worst part is that I don’t think I’d be alone in overlooking them. For years, I’ve focussed my attentions on pockets of society like the homeless, high net worth individuals (who can sometimes find it difficult to access credit) and those who are vulnerable or unbanked for other reasons.
The Government’s definition of financial inclusion is that ‘individuals, regardless of their background or income, have access to useful and affordable financial products and services’ and they have stated on multiple occasions that they are committed to ensuring that all customers in the UK can access the financial services they need. As you can see, this commitment extends to all types of vulnerable or otherwise unbanked customers.
The evidence of progress in financial inclusion can be found in many different ways, often supported by advances in technology. The movement towards ‘tech for good’ has also been good news for financial inclusion and has seen the UK’s FinTech community being instrumental in the change needed. Over the years, I’ve been heartened to see innovative partnerships like the ProxyAddress project forged to tackle some of these issues for the homeless population.
There’s no denying the lessons that can be learned from the projects already implemented as those who find themselves unbanked or underbanked do so for very similar reasons, regardless of the customer’s background or income.
Whilst the prison population suffer similar struggles, these struggles can often be exacerbated by the fact that inmates are at the mercy of the individual prison they are in as to whether there are processes to support basic bank account applications. If the prison doesn’t have the means to, or won’t support the process, it can sometimes be even harder to do this on release.
The benefits of access to banking isn’t necessarily obvious to some people but having a bank account is often key to being able to secure employment. Not only this, but in the steps prior to employment, having access to an account can make it easier to be included in the benefits system. These are fundamental requirements to support the prison population as they are reintroduced back into society. This isn’t financial inclusion in isolation, it is financial responsibility: the responsibility of the financial system to help in the rehabilitation of offenders.
It is clear that the financial sector has a huge part to play in this, but banks face many legal and regulatory barriers in this space. For example, basic bank accounts still require customers to have a form of ID and proof of address, some may require a credit check to be undertaken and some may have eligibility criteria which precludes those with criminal convictions. These are often difficult to tackle but they are not unsurmountable and there are plenty FinTech solutions out there to support ticking these boxes.
In fact, FinTech is a key piece of the financial inclusion jigsaw and is playing an increasingly pivotal role in finding solutions to the challenges that incumbent banks have historically struggled to wrangle. Whilst Stretch has been tight lipped on what their solution includes, you have to imagine that some of these barriers will have been overcome through innovative technologies. All the while ensuring that their product is legal and regulatory compliant. It will be a huge step forward for this segment of society in the USA.
In the UK, there has been a movement towards ensuring access to banking through basic bank accounts for a number of years. Indeed, through the Payment Accounts Regulations 2015, the 9 largest personal current account providers in the UK have been required to offer basic bank accounts that are fee-free for standard transactions. And there’s a clear appetite for these type of account, because according to HM Treasury’s last annual report there were 7,200,212 of them open at 30 June 2020.
The problem is that within that same report, it also shows that 60,000 applications for basic bank accounts were refused in the year June 19 to June 20. Whilst this number is a tiny proportion, the naked truth is that 60,000 people were refused access to basic banking and you may wonder why that’s possible.
The answer is because it’s a right of the banks which is entrenched in law. Through the Payment Account Regulations 2015, basic bank account applications can be refused for many reasons including where the opening of the account would be contrary to the Fraud Act 2006 or the Money Laundering Regulations or if the bank’s staff have been subject to threatening or abusive behaviour amounting to an offence under the Criminal Justice and Licencing (Scotland) Act 2010. Basically, this means that access isn’t universal as there are still legal and regulatory hoops that banks must navigate through and a lot of this depends on the person and their background.
Whilst this seems to be addressing the unbanked problem slowly, there are examples where the regulators have been tackling financial inclusion more quickly. A great example of this is where the FCA has had a key role in removing barriers to universal access to better deals for another type of prisoner – mortgage prisoners.
The industry has had to comply with swift regulatory intervention in this area which ensures that there are safeguards in place to remove consumer harm. Through lenders having the ability to use different and proportionate affordability assessments, some customers are able to switch products easier in order to be able to access better deals, often saving them money.
However, that’s about saving money, which doesn’t help those having nowhere to bank their money in the first place. By failing to support prisoners and those newly released to access basic bank accounts, the rest of the financial system becomes out of reach.
Now is the time to take financial responsibility seriously. The financial services sector needs to ask itself what further role it could play to support eliminating the unbanked problem faced by many.
From mortgage prisoners to actual prisoners, let’s ensure banking is accessible because surely an inclusive banking system that provides access to all is key to a fully functioning, safe and responsible society?
Other webinar panelists include Oli Henderson, Associate Partner, Financial Services – Transactions and Strategy, EY, Daniel Broby, Director, Centre for Financial Regulation and Innovation, Strathclyde University, Nicola Anderson, CEO, FinTech Scotland and Nicki Bisgaard, CEO, EedenBull & Chairman PayTech Group.