NFU Blog

Advice as driver for Financial Inclusion

Financial inclusion should be a priority for all governments and the financial sector. Helping to widen the net to those, who up until now, have been unable to access services and products, and being able to make accurate decisions based on those customers’ information, is an integral part of bringing about a more social Europe and giving everyone a fair chance at life.

When we think of financial inclusion we tend to focus, quite rightly, on those who are excluded from mainstream financial products such as credit cards, loans and bank accounts in general. To highlight how substantial an issue this is, in 2016 according to the World Bank, there were 138.6m people in this situation in Europe alone (Mastercard Financial Inclusion Survey). While this figure is for people not able, or not willing, to fully participate in the banking services offered in their country, it is still a significant number when dealing with an issue as important to daily life as proper access to finance.

The many faces of financial exclusion

However, financial inclusion has many dimensions and isn’t just limited to those who struggle to access credit. It is a widespread challenge with many offshoots, many of which we don’t necessarily think about when hearing the term financial inclusion. As highlighted during a Finance Watch workshop held in Copenhagen this September, simple things like not being able to consult your e-mails can led to exclusion. We’re all aware of the potential for exclusion faced by the groups of society with limited IT skills, as the financial institutions move their services increasingly online. However, governments, municipalities and many other institutions are doing the same, sending all their correspondence to citizens through online platforms, dedicated email servers etc. And that’s not even to mention the ‘tech’ companies (fintech, insurtech etc.) that only operate online. Yet few consider the ramifications of not being able to access your e-mails for whatever reasons. One example is people who are incarcerated, who are not allowed to go online. In some cases, they have no way of interacting with municipalities and financial institutions during their incarceration, leading to huge fees and back-payments awaiting them when they leave the prison as they have been defaulting on their payments for years.

The trap of quick-loans
Let’s not either forget the many, predominantly young people, who get into trouble with all forms of quick-loans and end up in various registers as bad debtors when they fail to pay back exorbitant interest rates. For many years, these people are stuck with a stigma that prevents them from getting access to financial services that many of us take for granted. This is not to say that financial commitments should be taken lightly and that there should be no consequences for making bad decisions, but we should always be mindful that it is easy to fall through the cracks of the system. This is also why the role of the financial advisor is so important, because if given the time and resources to meet with clients and explain to them the full ramifications of each financial choice, advisors can help their clients consider factors they were not aware of and find solutions that work for them. Likewise, it is up to society to properly educate its citizens about the risks associated with financial choices and for regulators to push for a finance industry that does not take advantage of vulnerable clients.

Making the new world of finance inclusive
This is especially important when taking a closer look at the many new providers of financial services, be they in the banking or insurance sector. Since they often can offer lower rates than traditional institutions, many customers are drawn to them. What these customers sometimes forget though is the reason why these institutions can run with lower fees, which often comes down to more ‘simplified’ or limited customer service options. While this may be the right option for some customers, regulators and educators should not forget to make this limitation public knowledge and require these companies to have at least some modicum of financial advice included in their service offerings. Whether it be credit, insurance or any financial services provider, what is emerging is the need to treat customers as individuals and design products and propositions for them accordingly, by engaging in an open and transparent dialogue with said customers. Because by understanding customers better, the burden of financial exclusion can be lifted, helping providers offer the most appropriate, and affordable, products and services in a way that hasn’t been possible before.

Morten Clausen

Twitter: @mf_clausen

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