The Payments Association, a trade group representing the payments sector, yesterday presented the policy recommendations that were proposed in its white paper to the House of Commons.

The report "Redefining Community Finance: Unlocking Pathways to Financial Inclusion" highlights the potential of institutions such as credit unions as solutions to financial exclusion in the UK. The FCA estimates one in four UK adults have low financial resilience – meaning they don’t have enough savings or resources to cover unexpected expenses without significantly impacting their standard of living. The Debt Justice reports a record 6.7 million Britons in severe financial difficulty. A greater public understanding of community finance could be the answer, but it needs support.

With millions of people struggling to access affordable financial services, the association’s Financial Inclusion Working Group is calling attention to the following policy recommendations to the House of Commons.

The Payments Association’s policy recommendations

Introduce a kitemark - create an easily recognisable symbol of outstanding quality, safety and trust for organisations working to support underserved consumers. This would help to drive trust among the public and generate a better understanding of community finance solutions. Such a kitemark would rely on appropriate signposting measures from both central and local government.

Incentivise greater engagement with the community finance sector. This could include targeted investment incentives for community finance institutions to draw upon and forms of support such as mentorship programmes and better signposting initiatives.

Relax the common bond and remove the credit broking barrier to affordable credit. Community finance providers should work with regulators to relax the common bond and remove the credit broking barrier to enable charities, businesses and community organisations to increase access to affordable credit. This would be unlocked by the Government expanding its existing exemption for Registered Social Landlords to all appropriate organisations.

The obstacles to financial inclusion in the UK

The white paper identifies several hurdles to achieve these recommendations. The first step towards prompting greater private and public sector buy-in, attracting investment to the sector, and reaching more consumers is to reassess and redefine the ‘brand’ of community finance. There needs to be a distinction between credit and debt. There is a tendency to talk about finances as ‘debt’ for subprime borrowers, while it is ‘credit’ for those classed as prime borrowers. These nuances matter as they serve to reinforce stereotypes.

Additionally, the traditional geographic definition of "community" limits their reach. The paper proposes broadening the definition to encompass shared values or experiences, citing successful examples like Sibstar, a debit card designed for dementia patients. By leveraging these connections, community finance can serve a wider range of underserved consumers.

Regulatory pressures further complicate matters. Community finance providers face the same regulations as large institutions despite having fewer resources.

Tony Craddock, Director General of The Payments Association, said: “Access to affordable financial services should be a fundamental right, yet a substantial portion of our population still faces significant barriers. This is the crux of the policy recommendations we have presented to the House of Commons. Community finance providers, including credit unions and Community Development Finance Institutions, are crucial in ensuring financial inclusion for all.

However, these vital organisations encounter numerous obstacles to their growth, such as negative public perception, limited resources and complex regulations. We urge policymakers to recognise the critical importance of community finance and seriously consider our recommendations to strengthen this vital sector."

Noyan Nihat, TPA Advisory Board Member and Financial Inclusion Working Group Mentor, said: "Community finance organisations play a critical role in serving financially underserved communities, yet they often face significant resource constraints and insufficient support to fulfil their vital mission effectively and at scale. The potential of community finance to drive financial inclusion is undeniable, but realising this potential requires a concerted effort from government, policymakers, the financial industry, and technology providers to cultivate a thriving ecosystem for this sector."

The Payments Association’s Financial Inclusion Working Group has the specific purpose to inform and collaborate with government, regulators and third-sector bodies, providing clarity on innovations and solutions in payments that can reduce financial exclusion and the poverty premium. It seeks to achieve this by collaborating with industry bodies, developing thought-leadership campaigns, and informing regulatory and legislative decisions.