Championing financial inclusion to drive commercial and social benefit

In January, Nikhil Rathi, FCA CEO, reiterated his call for industry, consumers, government and regulators to work together to capitalise on the opportunity to improve financial inclusion in the UK. To foster this collaboration, the FCA launched its TechSprint, aimed at tackling challenges in accessing financial services. With an open call for engagement, the question facing financial services firms is two fold: how should they approach inclusion and why should they prioritise this as a commercial driver for their business? And for the regulators and government: what more could they do to improve inclusion? 

To frame the answer, firms should recognise the value of embedding a customer needs-led, inclusive design approach throughout their business to boost inclusion and deliver value for all their customers. Embracing technology that is customer data-led should be fundamental to how firms adopt this inclusive approach; using it to enhance customers’ access and engagement, and increase firms’ operational efficiency.

As regulatory focus intensifies and customer needs continually evolve, firms should take bold and proactive steps to champion financial inclusion as part of their forward-looking strategy. To achieve this, firms should focus on three core aspects:

1. The commerical case for inclusion: Recognising the long term value and commercial viability of adopting an inclusive approach.
2. Shifting their business model: Integrating inclusive practices into the core business model to ensure alignment with evolving societal and customer expectations.
3. Technology-enablement: Utilising technology and data analytics to facilitate inclusive practices and enhance customer experience.

Framing the challenge

Improving inclusion in financial services is a multifaceted challenge - covering both consumers’ access and engagement with their financial products, services and providers. FCA research shows 1.1 million UK adults do not have a current account, while it also finds continued problems with customer services and communications, particularly for customers with characteristics of vulnerability.

Against this backdrop, regulatory focus on financial inclusion is expected to intensify. The Consumer Duty places an imperative on firms to understand, monitor and deliver good outcomes across their customer base, particularly those in vulnerable circumstances. Incoming rules to preserve access to free cash facilities also have inclusion as a core policy objective. 

The challenging macroeconomic environment is also driving a focus on financial inclusion, with changing customer expectations and the evolution of technology enhancing the need for firms’ forward-looking strategy to be closely guided by their customers’ developing needs and expectations. In this context, financial inclusion becomes not just a regulatory mandate, but a strategic imperative, influencing customer engagement, product design, and driving sustainable, long term value for their business and customers.

The commercial case

Firms should recognise the long term commercial case that financial inclusion has for their business.

Adopting an inclusive design approach reduces the risk that customers are deterred by inaccessible environments and experiences that don’t reflect their needs. It also provides an opportunity for the diversification of revenue through firms’ ability to target broader segments of customers. In the consumer credit sector alone, PwC research reveals one in three UK adults may have difficulty accessing credit from mainstream lenders (a 50% increase since 2016), with a further 11 million adults neither holding a credit card nor indicating they intend to.

The commercial opportunity to provide new or innovative offerings to reach underserved or excluded consumers can therefore be significant for firms. However, the challenge in prioritising inclusion is that the benefits may take time to materialise. Firms need to be bold; building a clear case for a business model that is competitive in a developing economic and societal environment.

A mindset and business model shift

Assessing inclusion can often be an afterthought, considered post-product design and as a compliance check-box. To reap tangible benefit, inclusion needs to be embedded at the heart of a firm’s operating model and run through the fabric of its products and services. This means putting the power in the customers’ hands to make choices about what they require so that all customers have the same level of access to the products and services they need. 

The starting point for many firms is to focus on the needs of customers with vulnerable characteristics. However, adopting an inclusive design approach broadens this focus and creates opportunity for the majority of customers to benefit. For example, a customer’s non-use of a digital channel is often a result of suboptimal design, rather than self-exclusion. When properly designed, the digital channel can democratise access and support all customers, while working alongside other channels to provide choice and address customer needs.

Technology-enabled

Technology should be fundamental to how firms enable this needs-led, inclusive design approach. But doing so in the right way - with appropriate guardrails - will be critical.

As outlined by Nikhil Rathi, emerging technologies, including biometrics, artificial intelligence, and open banking, bring significant opportunities for firms to enhance operational efficiencies, improve personalisation and enhance inclusion.

Research finds that 75% of disabled people turn away from a business due to poor accessibility or customer services. Adopting use cases such as frictionless digital onboarding journeys and improvements in integrations with smartphones/watches, for example, can be powerful in boosting inclusion. Data-driven personalised services and user interfaces can empower customers to engage in a way that suits them, especially as consumer expectations for personalised service increase with the rise of GenAI.

At the same time, firms should ensure the deployment of technology is supported by human oversight and appropriate risk management processes to reduce the likelihood and impact of unintended consequences and ensure customers are able to access the services they need.

Challenges for regulators

However, to fully address the challenges of financial inclusion, firms’ actions can only go so far. Firms are heavily influenced by the actions of regulators and are acutely conscious of the need to balance reputational, perceived financial crime, and credit risks within their strategy and risk appetite. 

Firms’ entry into the market is significantly guided by the likelihood of sustainable returns for their investors and whether they are reasonably unlikely to face regulatory sanctions. As such, the Joint Money Laundering Steering Group (JMLSG), the FCA and the PRA should consider whether coordinated changes could be made to rules and approaches to authorisation, supervision and enforcement to encourage firms to take bolder steps to service currently excluded customers. For regulators and government, it's important to provide a framework that gives consumers the ability to access the products and services that meet their needs, and avoid unintended consequences of regulation that may restrict that access.

Regulatory pressure and societal change means that financial inclusion should no longer be considered as a bolt-on only relevant for pockets of a firm’s customers; rather it must be adopted as a fundamental part of a firm’s purpose and strategic approach. Firms must recognise the value of embedding an inclusive, needs-led design approach throughout their business and be bold in taking steps to delivering this. Engaging in this society-wide debate is a good first step to take. Regulators too have an important role to play in building a regulatory framework that supports firms’ actions to drive financial inclusion going forwards.