Fintech
The Payments Association echoes calls for support with community funding
With millions of people in the UK struggling to access affordable financial services, the Payments Association is calling attention to under-utilised solutions, including community funding options such as credit unions. The document just released by the association: “Redefining community finance: Opening pathways to financial inclusion” highlights the potential of these institutions but also the significant barriers that hinder their growth.
The Payments Association’s Financial Inclusion Working Group specifically aims to inform and collaborate with government, regulators and third sector bodies, providing clarity on payments innovations and solutions 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 that one in four adults in the UK have low financial resilience, meaning they do not have enough savings or assets to cover unexpected expenses without significantly impacting their standard of living. Debt Justice reports the record figure of 6.7 million British citizens in serious financial difficulty. Greater public understanding of community finance could be the answer, but it needs support.
The specific problems
The white paper identifies several obstacles. The first step to stimulate greater public and private sector involvement, attract investment into the sector and reach more consumers is to re-evaluate and redefine the “brand” of community finance. A distinction must be made between credit and debt. There is a tendency to talk about finances as “debt” for subprime borrowers, while it is “credit” for those classified as prime borrowers. These nuances are important because they serve to reinforce stereotypes.
Furthermore, the traditional geographic definition of “community” limits its scope. The document proposes broadening the definition to include shared values or experiences, citing successful examples such as Sibstar, a debit card designed for dementia patients. By leveraging these connections, community finance can serve a broader range of underserved consumers.
Regulatory pressures further complicate matters. Community finance providers are subject to the same regulations as large institutions despite having fewer resources.
The Payments Association’s call to action
They recommend creating a dedicated “sandbox” environment where community funders 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 Organizations (CUSOs) in the United States.
A more equitable regulatory framework that recognizes the unique mission of community financial organizations is also needed. This can be combined with a reduction in business rates and a kitemark system to indicate trust and quality.
Finally, to encourage the involvement of major financial institutions, targeted investments, withdrawals, mentorship programs and improved signage initiatives could be explored. Collaboration between community finance providers and regulators is also key to addressing the common bond challenge and sharing successful solutions across the sector. By implementing these recommendations, the potential of community finance could be unlocked and empower financially disadvantaged 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 financial institutions, play a critical role in bridging this gap. However, the industry faces significant barriers to growth, including negative perceptions, limited resources and regulatory burdens. We hope that politicians realize the enormity of this problem and take our recommendations into account.”
Pooja Bhachu, chair of the Payments Association’s Financial Inclusion Working Group and director of public policy, UK and Ireland, Mastercard, wrote the foreword to the document, commenting: “Both Mastercard and The Payments Association support a society where equal access leads to equal opportunity for all. 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 Advisory Board, said: “Community finance organizations are doing extremely important work serving the least advantaged, but too often lack the resources and support to effectively carry out this mission at the scale needed. It is clear how powerful community funding can be for financial inclusion, but a collective effort is needed from government, policymakers, the financial sector and technology providers to support this sector’s prosperity.”
For more information about The Payments Association’s work and services you can visit Here or contact natasha.healy@thepaymentsassociation.org.