Claire Coutinho is MP for East Surrey.
The UK’s FinTech sector is booming. Investment into UK FinTech – new technology to improve financial services – is at record highs, accounting for over a third of all investment into the sector in Europe. Last year, London had more people working in FinTech and a greater number of venture-capital investment deals than any other city in the world. Companies like Monzo, Revolut and Starling are some of the great financial success stories of the post-2008 era.
Amidst this surge in technology, a new Policy Exchange report suggests, there is an opportunity to address a long-standing undercurrent working against Britain’s lowest earners – and to develop a financial services market which works for the traditionally underserved.
This is no small problem. There are an estimated 10 million people, largely on low incomes, who are under-served by their bank. This has led to a chronic poverty premium with a higher overall cost of banking and poor-quality insurance and savings products for people on the lowest incomes.
Lack of access to affordable credit has driven people towards high-cost short-term loans. For our lowest income households, a broken washing machine can quickly spiral into an endless cycle of crushing debt.
And although successive governments have made progress in tackling the systemic drivers of problem debt, more needs to be done for people on low incomes. Low income customers are not well served, in part because they tend to be loss-making under the traditional banking model.
But unburdened by the legacy costs of older banking providers, FinTech providers can and do see low-income consumers as sought after, valuable customers. This gives them the ability and incentive to provide more accessible, more tailored and cheaper services.
Policy Exchange’s report, Fintech for all, sets out a series of ambitious solutions to help encourage the development of FinTech services and products for people on low incomes. For example, the Government could look to open up the “Help to Save” scheme to FinTech providers. This saving scheme allows certain people entitled to Working Tax Credit or receiving Universal Credit to get a bonus of 50p for every £1 they save over four years.
Allowing FinTech firms to participate could allow customers to benefit from innovative saving tools, such as “rounding up” their everyday transactions and putting the difference in a savings account. Other tools include using AI to predict future financial commitments and the optimum amount for low income customers to save each month.
Another of its ideas is for the Government to fund Universal Credit Banking Vouchers. Banks could reclaim vouchers funded by the largest providers of personal current accounts if low income customers banked with them. This could inject sorely needed competition for low income customers into the banking market, increasing the incentive for our best FinTech innovators to develop new products designed especially for them.
The good news is there is some countrywide support in the Conservative Party for fresh thinking in this area. Gareth Davies, MP for Grantham and Richard Holden, MP for North West Durham are two fellow newly elected Tory MPs who also contributed to this report. Many more of our new and older intake are passionate about effecting real change in left-behind communities. They too should consider carefully the opportunities presented by our thriving FinTech sector.
After all, an inclusive banking system would allow those on low incomes to fully share in the advances in banking services as they continue to develop. From access to affordable credit, bespoke budgeting tools, savings and insurance products, a new wave of FinTech offerings could transform the way we approach Financial Inclusion in the UK and ultimately lead to low income individuals getting the banking services they want and need.
The UK FinTech industry presents an exciting growth opportunity for our economy to push new boundaries in technology and to allow access to good quality financial services for all. We must support these changemakers if we are truly to unleash Britain’s potential at home and on the world stage.