# Fintech for good – fighting financial exclusion with innovation
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2019-04-01
Category: TECHNOLOGY
Category URL: https://financedigest.com/category/technology
Meta Title: How Fintech can Tackle the Poverty Premium
Meta Description: Discover how Fintech can help low-income households access affordable financial services in the UK and combat the poverty premium. Learn more here.
URL: https://financedigest.com/fintech-for-good-fighting-financial-exclusion-with-innovationhtml

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_**Andrew Rabbitt**, CEO, incuto_

Fintech is rarely written about or described in the context of how it can help local communities or low-income households. More often than not, media stories focus on how financial technology has propelled a challenger bank into the limelight, about up-and-coming providers securing new funding or how Fintech is improving efficiencies and cost saving for customers. Innovation is, of course, both interesting and important – especially where financial services are improved and [cost savings are passed onto customers](https://www.financedigest.com/how-omnichannel-identity-servers-help-enterprises-enhance-customer-experience-unlock-cost-savings-and-accelerate-time-to-market.html "How omnichannel identity servers help enterprises enhance customer experience, unlock cost savings and accelerate time to market"). Not only this, but Fintech is [opening up a wide range of new financial services](https://www.financedigest.com/facilitating-open-finance-through-secure-services.html "Facilitating open finance through secure services") which may previously have been inaccessible or lack transparency for customers. It doesn’t, however, [address the vast numbers of individuals who may not have access to those services](https://www.financedigest.com/how-financial-services-organisations-can-address-the-vulnerability-lag-and-safeguard-their-most-important-digital-assets.html "How financial services organisations can address the ‘Vulnerability Lag’ and safeguard their most important digital assets") in the first place.

Financial exclusion – namely those individuals across the UK who cannot access financial [services](https://www.financedigest.com/integrated-finance-the-advantages-of-using-financial-infrastructure-as-a-service.html "Integrated Finance: the advantages of using financial-infrastructure-as-a-service") and often have to pay a poverty premium because of their low income – is a reality for many. Although innovation and technology adoption in financial services has been slow across the board, financial inclusion may be the final frontier for Fintech, and one that now [needs urgent](https://www.financedigest.com/ftx-collapse-shows-urgent-need-to-finalise-eu-crypto-rules-says-european-commission.html "FTX collapse shows urgent need to finalise EU crypto rules, says European Commission") attention.

There is a [huge opportunity](https://www.financedigest.com/quad-flat-no-lead-packaging-market-huge-growth-opportunity-between-2017-2027.html "Quad-Flat-No-Lead Packaging Market Huge Growth Opportunity between 2017-2027") for Fintech to participate in the ‘tech for good’ revolution – it’s time we saw innovation championing financial inclusion and access to high-quality, affordable services for all.

**Tackling the Poverty Premium**

![Andrew Rabbitt](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/andrew-rabbitt-1736839080580-compressed.jpg)

Andrew Rabbitt

In the UK, there are [around 14 million](https://www.financedigest.com/supercapacitor-market-size-to-worth-around-usd-5979-67-million-by-2026-tmr.html "Supercapacitor Market Size to Worth around USD 5,979.67 Million by 2026 – TMR") people who pay more for goods and services simply because they are from poorer households. These individuals and families are subject to a poverty premium which manifests itself in different ways. For example, if you can’t afford to buy [household goods and electrical](https://www.financedigest.com/funds-from-electricity-levy-could-help-german-households-says-renewables-association.html "Funds from electricity levy could help German households, says renewables association") items outright, you may need to use the extremely high-cost rent-to-own model of purchasing these items from providers like BrightHouse. Similarly, many low-income [households are forced to pay pre-paid tariffs for energy](https://www.financedigest.com/german-tax-authorities-should-show-leniency-to-households-firms-amid-energy-crisis-letter.html "German tax authorities should show leniency to households, firms amid energy crisis – letter"), meaning they don’t have access to the cheaper tariffs, and 1.5 million people in the UK do not have a bank account – forcing them to use expensive, cost-per-transaction, pre-paid card providers.

When it comes to gaining access to finance, these individuals again find themselves side-lined. Many have to resort to expensive payday lenders typically charging between 800-1200% APR. It is well publicised, and highlighted by organisations like the End High Cost Credit Alliance and Debt Hacker, that these [types of loans and the continued financial burden they put on individuals and families](https://www.financedigest.com/types-of-insurance-for-yourself-and-your-family.html "Types Of Insurance For Yourself And Your Family") can cause ongoing hardship for years to come.

Access to affordable, responsible [finance is at the heart](https://www.financedigest.com/cop26-coalition-worth-130-trillion-vows-to-put-climate-at-heart-of-finance.html "COP26 coalition worth 0 trillion vows to put climate at heart of finance") of eradicating the Poverty Premium. Namely, giving the financially excluded access to bank accounts, debit cards and lower interest loans so they are paying the same [costs as the wider population and not facing](https://www.financedigest.com/analysis-euros-20-year-low-leaves-ecb-facing-costly-choices.html "Analysis-Euro’s 20-year low leaves ECB facing costly choices") long-term, crippling debt. In today’s technology driven world, the potential exists to give everyone [access to better quality and cheaper financial products](https://www.financedigest.com/why-make-fintech-products-accessible-for-all.html "Why Make Fintech Products Accessible For All?") and services. If we empower organisations who work with low-income families and households and offer a viable alternative to high-interest, pay-day [loans and bank](https://www.financedigest.com/ant-group-starts-to-differentiate-consumer-loan-business-jiebei-from-bank-loans.html "Ant Group starts to differentiate consumer loan business Jiebei from bank loans") charges, we can take giant strides towards eradicating the poverty premium in financial services.

**[Enabling ethical](https://www.financedigest.com/ethical-financial-selling-the-role-of-compliance-technology-and-sales-enablement.html "Ethical Financial Selling: The Role of Compliance Technology and Sales Enablement ") banking**

The key to tackling the poverty premium in financial services must lie with those organisations who can offer fairer and more ethical approaches to lending. Credit unions, community banks and CDFIs are perfectly placed to take on this role. However, there continue to be a number of significant stumbling blocks for these lenders to reaching the individuals and communities they seek to serve.

For example, credit unions often offer their members limited branch networks (some have no more than two branches [servicing a given geographical area), plus they are struggling with legacy technology and paper-based systems which make their service extremely slow and inaccessible](https://www.financedigest.com/three-areas-of-focus-for-financial-service-cisos-in-2022.html "Three areas of focus for Financial Service CISOs in 2022"). Traditionally members have had to physically go into a [branch to either withdraw or pay](https://www.financedigest.com/unicredit-to-pay-bonus-replace-850-older-branch-staff-in-italy.html "UniCredit to pay bonus, replace 850 older branch staff in Italy") in money using only their membership number.

At a time when technology is making the very concept of a geographical customer base almost obsolete, credit unions have continued to serve only local communities, [despite the fact that demand](https://www.financedigest.com/oil-rises-on-strong-crude-demand-despite-china-fears.html "Oil rises on strong crude demand, despite China fears") for their services continues to grow. We know, for example, that membership to credit unions rose by 250% last year. This is despite the fact that nine credit unions went into default in the same period – perhaps due to their difficulties transforming the [service they offer in a digital era](https://www.financedigest.com/bringing-financial-services-into-the-digital-era.html "Bringing financial services into the digital era").

Unfortunately, UK Credit Unions, community [banks and CDFIs have struggled to compete](https://www.financedigest.com/can-banks-compete-in-the-digitisation-race-without-effective-data-integrity.html "Can banks compete in the digitisation race without effective data integrity?") with pay day lenders such as Wonga and QuickQuid. Rightly or wrongly, these [providers have succeeded in capturing the market](https://www.financedigest.com/unprecedented-constructive-disruption-to-drive-the-sleep-service-providers-market.html "Unprecedented, constructive disruption to drive the Sleep Service Providers Market") via easy, online access and high-profile advertising campaigns.

The solution is simple. Open up the [services credit](https://www.financedigest.com/credit-agricole-and-caceis-to-buy-rbc-investor-services-europe-unit.html "Credit Agricole and CACEIS to buy RBC Investor Services’ Europe unit") unions can offer and give access to a wider audience through technology. Better branch access via partnerships with wider networks, plus a debit card (rather than simply a Membership number) would allow the financially excluded to access additionally [services at the same price as the wider population and better online](https://www.financedigest.com/tesco-says-online-services-back-up-after-interference-attempt.html "Tesco says online services back up after interference ‘attempt’") access and automation.

**[Innovative technology](https://www.financedigest.com/cloud-professional-services-market-to-be-driven-by-technological-innovation-tmr.html "Cloud Professional Services Market to be Driven by Technological Innovation | TMR") for financial inclusion**

Like all organisations, credit unions [must innovate](https://www.financedigest.com/why-the-finance-sector-must-prioritise-mobile-security-over-innovation.html "Why the finance sector must prioritise mobile security over innovation") and transform the service they offer Members. A [digital offering](https://www.financedigest.com/digitization-to-offer-stewardship-to-the-robotic-surgery-market.html "Digitization to offer stewardship to the Robotic Surgery Market") that increases access and ease of use for customers is absolutely fundamental to that process.

Of course, any technology solution for credit unions must be all encompassing. After all, it’s not just about enabling people to apply online in a faster and more [efficient way](https://www.financedigest.com/finance-operations-efficiency-7-ways-to-slick-up-your-department.html "Finance operations efficiency – 7 ways to slick up your department"). It’s about giving them financial freedom and access to services such as a bank card and account which they can use, the ability to pay in [money at a wider network of outlets and the same level of interaction and engagement that they would receive from a high-street or online bank](https://www.financedigest.com/fiat-republic-the-specialist-baas-platform-that-bridges-the-gap-between-web3-and-traditional-banks-announces-it-has-become-an-electronic-money-institution-emi-in-the-uk.html "Fiat Republic, the specialist BaaS platform that bridges the gap between web3 and traditional banks, announces it has become an Electronic Money Institution (EMI) in the UK.").

Technology which would truly innovate [must include](https://www.financedigest.com/true-operational-resilience-must-include-investing-in-esg.html "True operational resilience must include investing in ESG") paper-free, automated applications; automated communication to increase engagement; 24/7 access including pre-authorised amounts and rates, pre-filled applications and e-signatures; automated ID verification, AML, affordability and credit scoring and underwriting; a self-service web portal for Members to view and manage their accounts and, as mentioned already, access to banking services including a debit card, an account number and sort code.

With technology now available to fulfil these requirements, it’s time that credit unions, community banks and CDFIs seized the chance to enhance and improve their [services and become more competitive through innovation](https://www.financedigest.com/accelerating-financial-services-innovation-with-the-promise-of-data-mesh.html "Accelerating financial services innovation with the promise of data mesh "). With many credit unions falling behind in a [digital world](https://www.financedigest.com/impact-com-releases-the-partnership-economy-a-new-book-that-guides-businesses-to-success-in-a-digital-world.html "impact.com releases The Partnership Economy, a new book that guides businesses to success in a digital world"), it’s more imperative than ever that these organisations embrace technology and subsequently address the problem of financial exclusion and education.


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