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valuable products and services. However, these new, more ethical private sector
entrants – such as FairforYou, Neyber, Uberima, Squirrel – face a number of
challenges, which stand between them and major scale and impact. Issues include
the need to attract consumers away from better-known brands with much larger
advertising budgets, and the difficulty of assessing risk. Their problems are often
aggravated by unreliable credit reference data and limited access to affordable
capital. The innovators that are making progress have devised business models that
navigate around these hurdles. But the upshot, in many cases, is that they focus on
serving medium-risk consumers who are in regular employment and who have a
transactional bank account.
No easy
answer for
the poor...
At the end of the day, there is no easy solution to the problem of how to offer the
very poorest the financial services they need - in particular how to make credit
available. Plus, however good they are, credit products are no substitute for the
measures that are needed to help raise incomes, reduce the cost of essential services
(such as housing and utilities) and to promote savings as a form of financial
resilience.
In this context, some of the new credit models are interesting in so far as they cut
costs by using technology – by being entirely online, by using automated systems
wherever possible, and by assessing credit risk in a manner that more carefully
reflects customer reality and ability to repay. This is where some of the new market
entrants have the edge on the banks, and it is a promising development since one has
to question whether conventional banks have the ability and/or the appetite to address
financial exclusion. It is important to recognise that it has required government
intervention, backed by law, to get incumbent banks to offer fee-free basic bank
accounts to anyone who wants one. At best, one can hope that banks will partner
with innovators, and use their scale and outreach to spread access to new products
and delivery channels that work for more people. That said, the problems of the very
poor – those who are unbanked and digitally excluded, and who are unlikely ever
to be profitable customers for either traditional or state-of-the-art financial services
providers – will remain with us for a very long time.
48 CSFI 73 LEADENHALL MARKET, LONDON EC3V 1LT Tel: 020 7621 1056 E-mail: info@csfi.org Web: www.csfi.org