In the UK 12 per cent of people do not have access to a bank account.
Earlier this year I was asked by someone in the US Treasury if I wanted to sign up to an email feed of articles addressing the issue of being un or underbanked. Since I signed up I have received about 10-15 articles a day – all of which testify to global financial exclusion and inequality at the hands of banking sectors worldwide.
It’s no wonder the emails are so frequent. Some 2.5 billion adults, which represents just over half the world’s population, do not use, and/or are unable to use, formal financial services to save or borrow.
And though a large proportion of the unbanked live in relatively poorer nations in the Middle East, Africa or Latin America, these are not the only places you will find them.
In the United States for example, one of the richest countries in the world, up to a third of the US population – which is around 106 million people – are either unbanked or under banked, according to the Federal Deposit Insurance Corporation.
Here in the UK it was estimated that 12 per cent of UK nationals (744,000) do not have access to a bank account which allows access to facilities such as overdrafts. These are the underbanked.
The figure was estimated by JMP Securities, but is likely to be slightly lower than the real figure.
Other figures suggest that up to 1.5 million individuals are without a basic bank account in the UK. This would exclude them from making even simple transactions like direct debit payments.
It has to be said that a lot has been achieved since the last government started prioritising financial exclusion. The Financial Inclusion Taskforce estimated that the number of working age adults without access to a transactional bank account has fallen from 3.57 million in 2002/3 to 900,000 in 2007/8 – though the number did creep back up to 1.54 million in 2010.
Despite debates and disagreements on the total UK figures the large number of un – or underbanked people and households in the UK poses particular problems.
Save the Children in an influential 2010 report pointed out that those who are not served by a mainstream bank account are more likely to be penalised by the so called ‘poverty premium’.
The sum identified for the poverty premium was £1,288. This accounts for how much on average a low income individual will pay on excess charges, fees and interest on standard goods, compared to their financially included peers.
On energy bills, for example, non-direct debit methods of payment bring much higher tariffs even if that customer has been loyal to the supplier.
Recently two councils have been criticised for disproportionately charging people who, for whatever reason, do not pay council charges through direct debit or online. There is an argument for those who choose not to do this, as direct debit payments are cheaper for councils, but for those who are un – or underbanked this seems particularly unfair.
In Ashford District Council the price for garden waste collection for 2014 has risen to £22 per year, up from £20 for those customers who sign up to direct debit. But for non direct debit customers it is £26. The poverty premium in action.
And this is not an issue that any one political party should be boastful about.
Birmingham has come under fire for not accepting cash payments for its new £35 per year garden rubbish collection charge. Conservative councillor Deirdre Alden used this issue to scorn the Labour Party for not caring “about those who don’t have internet access or a bank account”.
All this is set to get a lot worse under a system of Universal Credit (UC). What may have been intended to be a rather noble move (monthly benefit payments to prepare claimants for monthly payments at work, good for budgeting) will be a very messy affair for those not served by banks.
As the White Paper on UC noted, of the 8 million households in the UK that receive benefits up to 1.3 million don’t have a bank account. So it is beyond belief that UC payments will go straight into bank accounts – surely first the DWP must sort out the issue of making the unbanked, banked.
Some housing associations and councils are being creative about how to deal with this themselves but we cannot rely on debt advice, hardship funds, and affordable broadband rates alone. We need to nip the problem in the bud from the outset.
Banks have to play their part in reducing the amount of unbanked people, particularly those in receipt of benefit payments, before UC is rolled out nationally. It would be desirable to see banks working together on this issue and establishing some achievable milestones.
Also councils need to work with organisations that are producing prepaid cards; financial institutions like credit unions for example.
The Credit Union prepaid card was launched by The Association of British Credit Unions (ABCUL) in the summer of 2012. Where it has been used today it has proved extremely helpful for those who seek financial inclusion.
Seamus McAnee of Derry Credit Union Ltd, who now use prepaid cards, recently said:
“[prepaid cards] provide access to electronic payments for the unbanked in our community, and for those whose poor credit history would prevent them from obtaining a credit card or debit card tied to a bank account.”
Improvements to the proportion of people who are un or underbanked have been promising but there is a long way still to go. The fear however is that these people will be placed on the scrapheap as radical changes are made to our welfare system.
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