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combating financial exclusion
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Background Social exclusion affects individuals,
families and communities where there are high levels of
unemployment, low skills, little or no investment and
poor housing or infrastructure and shows up in low
incomes, poor health, family breakdown and high crime
rates.i In November 1999, the UK Government
published a report on a key causal component -
financial exclusionii. This noted that, whilst 1.5 million
low-income families do not use banks and building
societies, the reasons are complex. Outright refusal by
the banks to provide an account is rare. "More often",
it said, "the problem is a mismatch between potential
customers' needs and the products on offer." Part of the
Government's proposal was the requirement for banks
to provide basic accounts.
The purpose of this review is to assess whether The
Co-operative Bank's response to financial exclusion
has been consistent with its co-operative and ethical
values and the extent to which it has taken a lead
amongst financial institutions.
An informed strategy The Co-operative
Bank's researchiii found that the most pressing financial
problems for people on low incomes were debt
management and access to credit, rather than obtaining
a current account. Further research, focused on young
people in poor housing estates in Manchester and
Brightoniv, identified a strong sense of alienation and
exclusion from economic and social development.
They said this resulted from, among other things, a lack
of jobs and opportunities, poor housing conditions,
high crime rates and a lack of influence over
investments into the community.
The bank has responded to the following issues:
debt management; access to affordable credit; the
provision of basic banking facilities to people formerly
excluded; ensuring that people have convenient ways
to manage bills and other financial transactions; and
the basic issue of investment in poor communities.
Debt Management Debt management is not
exclusively a problem for people on very low incomes.
However, research sponsored by the bank clearly
shows that many people on low incomes fail to
manage their debts and often use very high cost
sources for credit and cash loans. The bank has
campaigned consistently for free money advice and its
own scheme claims significant success in helping
people control and manage debt - 1,300 accounts have
benefited from the services of the bank's new Debt
Counselling Unit in 2001.
The Co-operative Bank's
commitment to Credit Unions Policy
Action Team 14's Reportii on Access to Financial
Services called for a healthy and sustainable growth in
credit unions, because, "they are open to low income
groups, encourage small scale savings, provide low
cost credit; and can be a bridge to other financial
services." The bank has long supported the Association
of British Credit Unions (ABCUL), sponsoring its
conference and regional events, supporting its
research and development programmes, supporting
work on a Central Services Organisation proposed for
UK credit unions and through significant bank staff
inputs. The bank also provides banking services to
60% of UK credit unions.
Credit unions are clearly part of the solution to financial
exclusion and one with which the bank has identified
very strongly. However, the bank is also aware of where
credit unions have failed. The bank is investing in
helping credit unions to become more accessible to
low income, working class people and is providing
a pilot credit guarantee fund in health priority action
areas to allow those people who have no savings to
still access credit.
Banking facilities for the financially
excluded The bank has a basic account,
Cashminder, for those people applying for accounts
who cannot meet the normal criteria for a full current
credit account. Cashminder is not promoted separately
from the bank's other services and is seen as a means
of introducing and welcoming the financially excluded
into normal bank services. There are currently 7,500
Cashminder accounts. More data on the profile of
these customers and their ongoing history with the
bank would throw light on whether basic accounts
really help poor people. Special account facilities for
refugees and for Big Issue vendors have overcome
identity and residence requirements for 'normal'
banking facilities.
Banks have generally been reluctant to disclose
information on their provision of services to the socially
excluded. The Co-operative Bank is one of only two
banks to publish a detailed socio-economic profile of
its customers (page 27). The bank does provide
services to customers in low-income groups, but the
percentage of the bank's customers in council
accommodation appears lower than the proportion in
the population.
Access The Co-operative Bank was the first, apart
from the Post Office's own Girobank (now part of
Alliance & Leicester), to arrange for its customers to
carry out routine transactions at Post Office Counters.
While Direct Debits are generally cheaper for paying
domestic and other bills, more than six million
householders pay some or all of their bills in cash.
PayPoint is a branded payment collection agency free
to the payer and paying commission to the agent which
allows people to pay what they can afford when they
have the cash. The Co-operative Bank has promoted
this scheme, provided banking facilities and access
points for PayPoint machines. The Co-operative Bank
has also agreed to support the Government's proposals
for a Universal Bank to provide more people with basic
bank accounts through the Post Office network.
Investing in financially excluded
communities The bank is involved in a number
of community financing schemes directed at deprived
areas and communities. Its "Youth Poverty" research
programme and campaign has resulted in collaboration
with the Community Foundation for Greater Manchester
to provide funds for 'youth led' community investment
initiatives. Monitoring its business customers in
deprived areas shows more accounts and higher loan
and overdraft balances than the UK banks' average.
Opinion Based on its own values and historic
identification with economically marginalised
communities, the bank has commissioned research
into understanding the effects and causes of financial
exclusion. It has responded with innovative ideas and
in a variety of ways to align its business with the needs
identified in its research. Dealing with chronic debt and
providing viable alternatives to unregulated lenders and
other sources of high cost credit have rightly, in my
view been prioritised. The bank has also recognised
the reality of the cash economy that many low-income
families use and has supported low cost, convenient
access for cash payment of domestic bills.
The bank's own research indicates some reasons why
credit unions may be failing to meet the needs of the
very poor. It is in a unique position to support and
mediate change in the way credit unions operate.
Ronnie Hobley, ABCUL President says: "The relationship
between ABCUL and The Co-operative Bank has been
in place for many years. ABCUL welcomes this
support, both material and financial. We see this
relationship as vital to the continuing growth of credit
unions and also as a means of supplying affordable
credit to those most in need. Their support is ongoing
and we believe The Co-operative Bank will be in
partnership with us for many years to come. This is a
true example of co-operators co-operating."
The creation of a Universal Bank, due to be launched in
Spring 2003 and which will be supported by the bank,
is intended to provide a robust means for the entire
retail banking sector to realise aspects of financial
inclusion. Otherwise, the bank may need to address its
relatively low penetration in some poorer sections of
society and the low uptake of its basic bank accounts.
This would require a different approach to that used for
marketing financial services to the financially literate
and affluent, that has been a focus of the bank's
attention. |
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- UK Government Social Exclusion Unit (March 2002).
www.cabinet-office.gov.uk/seu
- UK Government Policy Action Team (14 November 1999).
Access to Financial Services.
www.hm-treasury.gov.uk/documents/financial_services/fin_access/
- Jones, P.A. (November 2001). Access to Credit on a Low Income.
The Co-operative Bank/Liverpool John Moores University
- Nunwood Consulting (September 2000). Deprived Communities:
A Young Person's Perspective.
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