How Covid has helped to inspire inclusive innovation in financial services

When the conversation turns to the positives to be found amid the colossal negatives of Covid-19, digital transformation frequently tops the list.

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Lockdown meant that creative solutions had to be found very rapidly, including support for those who have missed out on the digital banking revolution and needed ways to access and spend money.

“There was already a strong focus on financial inclusion and access to digital banking and – because of Covid-19 – it’s really come to the fore ,” says Caroline Stevenson, legal director at Womble Bond Dickinson.

“People have had to adopt technology that they might otherwise have shied away from; Covid-19 has been a real catalyst to the adoption of digital banking.”

Figures from the Office of National Statistics show that the direction of travel was clear before the pandemic. The number of UK households with internet access was 96 per cent in early 2020, up from 93 per cent at the same time in 2019. Also in early 2020, 76 per cent of adults in the UK were using internet banking, up from 73 per cent a year before.

However, the number of ‘unbanked’ adults in the UK (those with no current account or alternative e-money account) still sits at more than one million – but will the reaction to the pandemic see this fall?.

John Glen MP, economic secretary to the Treasury, suggested it might, when answering a question in parliament in June. He said: “In the current context of Covid-19, banks, building societies, Post Office and credit unions are working closely with the Treasury, the Financial Conduct Authority and the Prudential Regulation Authority to maintain branch access for essential services, including opening a bank account if an individual is unbanked.”

However, Paul Frost, interim chief executive of The Money Charity, warns not everyone is ready to embrace change: “Even as it opens newer, sharper, more intuitive and even exciting ways to manage our money well and increase our financial wellbeing, the technology advances of our onrushing digital world can often feel relentless and all-consuming.

“It is essential then that as things progress and evolve, we are diligent and aware enough to not leave behind and exclude large portions of society.”

This is the challenge which the independent Access to Cash Review, led by Natalie Ceeney, seeks to address. One project arising from the review is the Community Access to Cash Pilot initiative, which announced nine UK schemes in September, including Cambuslang in South Lanarkshire and Denny, near Falkirk. The pilots aim to “address challenges of improving cash access and acceptance”, and are due to be set up by the end of this year. They will run for six months from January through to June 2021, with feedback to follow.

The package of solutions, which differ for each location, include:

- New local ‘banking hubs’ in high street retail spaces, combining cash-transaction facilities of a post office with access to community banking services by retail banks;

- Local cash deposit facilities for small businesses;

- Pop-up post office services, allowing small communities to access basic over-the-counter banking services within an existing small shop;

- Widespread cashback from local stores, restaurants and pubs;

- Digital banking education for those who want it;

- New free-to-use cash machines.

However, on the last point, the number of ATMs in the UK in February was just over 60,000, down almost 3,000 on the year before. Meanwhile, the number of machines that charge to withdraw money is on the rise – from 11,120 in 2018 to 15,277 in 2019, according to the cash machine network Link.

Branch closures also continue apace. Which? magazine has reported that 3,770 bank and building society branches have closed since 2015.

Natalie Ceeney, chair of the Community Access to Cash Pilot, insists that all these factors play a part in financial exclusion: “The rapid switch to digital is threatening the viability of today’s cash infrastructure. This can lead to consumers left without cash access or forced to leave their own village or town to get cash elsewhere, often at significant inconvenience and cost.

“In turn, local retailers lose custom, as consumers spend their cash elsewhere, and then struggle to bank their cash takings without shutting up shop to drive to a bank branch some miles away, losing revenue and frustrating customers.

“It’s critical that we find ways to protect the viability of cash, for consumers and communities alike.”

Caroline Stevenson is supportive of the work of the Community Access to Cash Pilot and Scottish start-ups such as OneBanks, which aims to offer banking facilities for customers of all banks via its kiosks. She says: “I have been banging the drum for community hubs providing banking facilities that go beyond what the Post Office can do. Initiatives like OneBanks have been helped by open banking and I hope it will be successful. It offers the human element and teaches people how to do their banking digitally at the same time, which has to be the way forward.”

Stevenson believes banks deserve praise for their attempts to help vulnerable customers throughout the Covid-19 crisis: “They have managed to implement change quickly to help the most vulnerable customers.

“We have seen interesting innovation in this area with ‘companion cards’ provided by many banks and other financial institutions to allow a second cardholder on an account, where someone who was shielding, for example, needed shopping done by someone else.

“The Post Office has also come out of this crisis very well, with 90 per cent of branches staying open and supporting those who have financial challenges, including couriering cash to people who most needed it. That was key for communities.”

However, Stevenson recognises that despite all these innovations, we are “not close to eradicating financial exclusion”, and thinks that to bridge the digital banking gap, we might have to look at radical solutions.

“We can only ever go so far with financial inclusion, unless we want to go down the route where we provide everyone with a smartphone and ensure they have access to good-quality broadband. I don’t think we are at that stage yet.”

Eleanor Shaw, associate principal at the University of Strathclyde, agrees: “If fintech [financial technology] is going to realise its social benefits, people need access to faster and cheaper broadband, and 5G technology is clearly crucial to that.

“I think fintech can make an important economic contribution, but also close the gaps in financial literacy and promote financial inclusion.”

Yet the challenge of financial inclusion in 2021 might be far harder to tackle as the economic impacts of the pandemic really start to bite.

There are estimates that 2.5 million people in the UK could be unemployed by the end of the year, while the numbers on Universal Credit in Scotland are already up to around 500,000. In addition, the amnesty on residential evictions could have severe repercussions when they are lifted.

As Philip Knight, head of litigation at Womble Bond Dickinson, says: “There can be no residential evictions until at least next March, by which time some tenants will not have paid rent for a year.

“Understandably, housing advice charities are telling them they cannot be evicted or pursued for rent until next spring, but a lot of people will then just not be able to pay their rent and will be evicted.”

In July, Citizens Advice Scotland warned that 27 per cent of its clients were concerned about making debt repayments as a result of the pandemic.

Myles Fitt, the organisation’s financial health spokesperson, says: “Temporary measures to protect income during Covid-19 have been welcome and broadly successful, but it’s clear that

Scotland is facing a personal debt timebomb as we emerge from lockdown and slowly begin to restart the economy.

“Our fear is that many households will fall into unmanageable debt, causing financial hardship and pushing more people into poverty, or exacerbate existing poverty.”