The Payments Association Echoes Industry Calls for Policymakers and the Fintech Sector to Support Consumers with Community Finance

Payments
18.06.2024 02:15 pm

With millions of people in the UK struggling to access affordable financial services, The Payments Association is calling attention to underutilised solutions including community finance options like credit unions. The association’s newly released paper: "Redefining Community Finance: Unlocking Pathways to Financial Inclusion" highlights the potential of these institutions but also the significant barriers hindering their growth.

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.

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.

The specific problems

The whitepaper identifies several hurdles. 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.

The Payments Association’s call to action

They recommend establishing a dedicated "sandbox" environment where community lenders and technology providers can collaborate and develop innovative solutions. Additionally, the government should learn from successful initiatives in other countries, such as Credit Union Service Organisations (CUSOs) in the US.

A fairer regulatory framework that acknowledges the unique mission of community finance organisations is also needed. This can be coupled with business rate relief and a kitemark system to signify trust and quality.

Finally, to encourage engagement from mainstream financial institutions, targeted investments, levies, mentorship programs, and improved signposting initiatives could be explored. Collaboration between community finance providers and regulators is also crucial to navigate the common bond challenge and share successful solutions across the sector. By implementing these recommendations, the potential of community finance could be unlocked and empower financially underserved communities.

Tony Craddock, Director General of The Payments Association, said: “Financial inclusion remains critically important, with a staggering number of people in this country still struggling to access financial services. Community finance providers, such as credit unions and Community Development Finance Institutions, play a vital role in bridging this gap. However, the sector faces significant barriers to growth, including negative perceptions, limited resources, and regulatory burdens. We hope policymakers realise the enormity of this issue and take our recommendations on board.”

Pooja Bhachu, Chair of the Payments Association's Financial Inclusion Working Group and Director, Public Policy, UK & Ireland, Mastercard, wrote the foreword to the paper - commenting: “At both Mastercard and The Payments Association, we advocate for a society where equal access leads to equitable opportunity for everyone. This whitepaper is a call to action for the financial services industry, policymakers, and innovators to come together and build a more inclusive financial system."

Neil Harris, Chair of The Payments Association’s Advisory Board, said: “Community finance organisations are doing enormously important work serving the underserved, but all too often they lack the resources and support to effectively carry out this mission at the scale that is needed. It is clear what a powerful tool for financial inclusion that community finance can be, but it needs a collective effort from government, policymakers, the finance industry, and technology providers to support this sector to thrive.”