Financial health is undervaluedby Helen Goodman / September 20, 2016 / Leave a comment
Read a companion piece titled “Is Britain’s banking system competitive enough?” here
Two million adults in the UK don’t have a bank account. I think that’s staggering.
Of the adults that do have bank accounts, a third have been with their bank for over twenty years. Only one in fifty people switch their main account provider each year. That’s why competition to sign up young customers for their first current account is so fierce. Once you open an account with a bank, chances are you’ll be with them for years—an accidentally loyally customer.
So how do we shape policy to cut financial exclusion and enable customers to get the most out of their banks?
Financial exclusion is a huge, largely invisible problem. In my Durham constituency there is a town of 12,000 people with no bank branch, because low incomes mean their custom is not profitable. The financially excluded pay a “poverty premium” of £1,300 a year because they are forced to meet their financial needs through other methods. For instance, two million people took out a high cost loan in 2012 because they couldn’t access other credit.
One justification for closing branches is that the public are shifting online. Just after the Referendum, Lloyds announced another 200 closures. However, there is huge overlap between the digitally excluded and the financially excluded. The Tinder Foundation found that 11 million people lack the basic online skills they need to do things like online banking, and that’s ignoring the fact that many areas lack reliable broadband infrastructure in the first place.
Another problem concerns switching and competition. Knowing the price of a service and being able to switch provider are essential for any market to be competitive.
Most people stay with their bank, happy or not, because frankly no one wants to spend hours porting across direct debits and bills and changing their details. People are also worried about what would happen if anything went wrong. In fact, the Current Account Switch Service (CASS) covers 99 per cent of the current account market and allows individuals and small businesses to switch banks easily. Your new bank will manage the whole process for you free of charge.
Not enough people know this scheme exists, and of those that do, they aren’t clear how it works and how reliable it is. It is the job of…