In the quest for financial empowerment in underserved communities, technology is emerging as a powerful catalyst for change. Rather than continuing to ignore the need to include financially illiterate communities, industry leaders are urging for wide-spread regulatory changes to break down the barriers to entry for the pariahs of the financial world.
In a meeting of the minds, featuring a handful of prominent industry players, these flashpoints were put under the microscope in an event hosted by FinTech Global. The event welcomed senior leaders from the financial realm to Rise London, giving them a platform to discuss the potential ways in which the financial world can become more inclusive.
The panel was moderated by Lucy Mullins, co-founder of Circles powered by StepLadder, and featured Karan Shanmugarajah, CEO of WealthKernel, Shalom Osiadi, founder of Esca, and Simon Ripton, Propositions Director at Moneyhub.
Barriers to entry
Over the course of the session, the four panelists delved into an altruistic discussion, which began with Shanmugarajah outlining what he thinks is the main barrier to entry for these less-financially literate groups. He said, “So there are a lot of barriers; it is tough. I think the first thing is that people need to take more responsibility for their financial affairs. You see this in other parts of G7 countries where the state isn’t as involved in your affairs and in your pension. So, you have to take care of it compared to the UK, where the state has some involvement.”
On top of this, the WealthKernel CEO stressed that this has come as a consequence of the litany of regulatory jargon utilised by the government when examining a person’s finances. Shanmugarajah pulled apart the concept of affordability tests in particular. Adding that they do not offer a fair solution for renters, some of whom have been paying money every month for their living space. With regulation that is so complex and befuddling, it is no wonder that only 5% of Brits were able to answer 10 questions about frequently discussed financial topics correctly, according to a recent study from The Centre for Economics and Business Research (CEBR).
According to Shanmugarajah, part of the blame in fact, lies with HMRC and the government for issues such as the one presented by CEBR, not with the industry as a whole, who is pushing to combat the issue. This was reaffirmed by Mullins, who explained that in her own experience at the helm of Circles powered by StepLadder, she was informed that her company couldn’t utilise the word savings to advertise their borrowing and lending platform, which in her eyes only further locked out the less financially literate from being able to understand, and benefit from their rotating savings and credit association (ROSCA).
When discussing the clear issue of policy, Ripton outlined that he believed it was the main issue regarding financial inclusion – and therefore the largest barrier. Furthering his point, he delved into the ludicrously complex world of pensions, admitting that he even throws away the overly jargon-filled letters that come through the door.
The panel continued this debate, coming to the conclusion that regular people simply have no idea how much is in their pension. Osiadi confirmed that this was the case for him upon leaving a former role, as he got the pleasant surprise that his pension pot was more filled than he anticipated.
The Irish entrepreneur continued, claiming that making things more accessible is the main issue, and has to be seen as the crux of the matter. When discussing the issue in a wider context. He said, the massive barrier to entry is access. If you look at countries like Nigeria, vast amounts of people don’t even have access to the internet, let alone the ability to be included in the financial ecosystem. A big part of changing that is being able to access people in regions where poverty is at such a height that banks don’t even think to include them in their plans. If you’re telling a multi-national bank to go into a town of 700 people where the highest salary is $500 a year, then that his not an incentive for them. So, what we are seeing now is tools being built to give access to these people.”
Ripton concurred, admitting that if making moves to empower those in communities who are not financially literate was profitable, then the powers that be would have already implemented them.
Shanmugarajah finished this portion with a parting shot at HMRC for their lack of empathy in regards to financial inclusion. He said, “HMRC knows about all the pensions you’ve ever had and will tell you if you owe money, but they don’t tell you how much and where your pensions are; that is something the government should start doing.”
How to change the game
The discussion diverted away from the barriers, and swiftly looked to work out how the industry can change the game for these less financially developed cohorts.
Osiadi opened the discussion, stating that he believes individuals can effectively become their own businesses and supply financial services to other people. For example, an individual with a point-of-sale machine can around a village and allows people to transfer money around, taking away the power from these traditional brick and mortar establishments who historically neglect these people.
Shanmugarajah continued the debate, explaining that there should be changes in HMRC, due to the complex web of issues with the regulatory guidelines such as the amount of different ISAs.
The goal, as discussed, is to simplify and streamline accessibility, with Shanmugarajah claiming that this level of financial illiteracy is a huge liability for governments as people rely on them for support as their pension doesn’t cover what is needed. Osiadi concurred with the sentiment, suggesting that there needs to be “some sort of lobbying from a regulatory side to increase knowledge from consumers.”
Mullins posed a question to the group, discussing whether or not the issue stems from education, as she asked whether or not simple financial skills need to be incorporated into the core curriculum of schools.
However, the answer wasn’t so clear, and the esteemed list of panellists were split on the subject, with Shanmugarajah suggesting that all we need is a base level knowledge of budgeting and that we need to continuously learn from our research and make decisions that suit our financial state.
Ultimately, the debate will rumble on to how we can best break down the barriers for the financially illiterate – making the industry more accessible – but the panel did certainly begin to share some potential solutions to the latest plight in the financial world.
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