# Why banks could stand to learn a thing or two about financial inclusion from fintechs
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-10
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: The Importance of Financial Inclusion in UK Banking
Meta Description: Explore the impact of financial exclusion on quality of life and how challenger banks and fintechs are driving the fight for financial inclusion. Discover the
URL: https://financedigest.com/why-banks-could-stand-to-learn-a-thing-or-two-about-financial-inclusion-from-fintechshtml

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_![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/61-1736814591962-compressed.jpg)_

_By **Julia McColl,** Chief Product Officer, Chetwood Financial_

Despite the dizzying volume of innovation from within the financial services space in recent years, with the available products and solutions becoming ever more diverse and useful, lack of financial inclusion is a problem that merits greater attention from legacy financial institutions like high-street banks.

Financial inclusion – having access to ‘mainstream’ banking products and financial services – has a profound impact on quality of life and its absence can trap consumers in cycles of hardship. When dealing with unexpected [financial troubles, such as medical costs or emergency repairs, not having access to suitable financial products](https://www.financedigest.com/50-of-consumers-wont-spend-more-than-20-minutes-applying-for-financial-products-online.html "50% of consumers won’t spend more than 20 minutes applying for financial products online") can lead to people paying a ‘poverty premium’ – higher-cost alternatives that exacerbate financial hardship. Undoubtedly, this is a situation that is only made more likely by the ongoing [cost-of-living crisis](https://www.financedigest.com/british-shoppers-defy-cost-of-living-crisis-at-christmas.html "British shoppers defy cost-of-living crisis at Christmas").

The problems of financial inclusion are more widespread than you might think: a troubling proportion of UK adults, [numbering more than 1.2 million UK adults in 2020](https://www.fca.org.uk/publication/research/financial-lives-survey-2020.pdf) according to the Financial Conduct Authority (FCA), don’t have access to a bank account, which automatically excludes them from most financial services and the benefits they offer.

Until recently, only legacy [banks had the impetus and resources necessary to combat financial](https://www.financedigest.com/financial-crime-is-the-chink-in-the-banks-armour.html "Financial crime is the chink in the banks’ armour") exclusion, but in recent years it has been the proliferation of new challenger banks and fintechs that have driven the fight for financial inclusion, banking the unbanked and providing financial services to underserved segments.

**To each, their own**

Part of the problem with financial inclusion is that, until recently, most [banks adopted a ‘one size fits all’ approach to their products and services](https://www.financedigest.com/20-billion-in-bank-service-fees-are-you-overpaying.html " Billion in Bank Service Fees: Are You Overpaying?"), with very little variation between providers. Those who weren’t suitable for most mainstream solutions had nowhere else to turn, and today, even though legacy [banks have begun to offer](https://www.financedigest.com/first-abu-dhabi-bank-reiterates-not-eyeing-offer-for-standard-chartered.html "First Abu Dhabi Bank reiterates not eyeing offer for Standard Chartered") more numerous and varied products, that old narrow mindset is still pervasive.

‘One-size-fits-all’ simply doesn’t work, especially considering the diversity in [financial backgrounds and levels of financial literacy](https://www.financedigest.com/5-ways-to-improve-your-financial-literacy.html "5 Ways to Improve Your Financial Literacy") that are found throughout the populace. Part of the growth in popularity of fintechs and [challenger banks](https://www.financedigest.com/big-banks-can-be-challengers-too.html "Big banks can be challengers too") is that they provide products and services to segments that have historically had very limited access to financial services, offering a route to financial inclusion where previously none existed.

Due to their agility, flexibility and willingness to adapt, fintechs and Banking-as-a-Service (BaaS) providers are more manoeuvrable than their larger counterparts, who are often [hindered by red tape](https://www.financedigest.com/increasing-regulatory-red-tape-promptsa-new-approachto-trading-data-management-among-fs-firms.html "Increasing regulatory red tape prompts a new approach to trading data management among FS firms") and legacy architecture.  In turn, they can provide services that are more responsive, customisable, and likely to meet consumers at the point of need – embedded finance products are already going some way to achieving this, allowing people without easy access to [financial services](https://www.financedigest.com/what-can-we-learn-from-financial-services-security.html "What can we Learn from Financial Services Security?") with the ability to digitally store money, access credit and even transact cross-border.

The [importance of ‘knowing your customer’ to all businesses](https://www.financedigest.com/the-importance-of-property-care-looking-after-your-business.html "The Importance of Property Care: Looking After Your Business"), financial or otherwise, can’t be overstated, and fintechs have been better at recognising the gaps in the market and plugging those gaps with suitable, accessible products, and this is something that legacy banks could stand to learn from.

**Knowing where to look**

While it might sound simple to provide people with products that they need, identifying the underserved segments and understanding the factors that preclude them from financial services are challenges that banks and fintechs must [overcome](https://www.financedigest.com/overcoming-information-overload-in-the-financial-sector.html "OVERCOMING INFORMATION OVERLOAD IN THE FINANCIAL SECTOR") to combat financial exclusion.

In part, the [key to this is data](https://www.financedigest.com/2023-fintech-prediction-secure-and-private-data-usage-is-key.html "2023 FinTech Prediction: Secure and Private Data Usage is Key"). Thanks to newer technologies and digital innovation, [fintechs can access comprehensive product utilisation insights to gain a greater](https://www.financedigest.com/brexit-the-risks-to-the-city-and-fintech-have-never-been-greater.html "BREXIT: THE RISKS TO THE CITY AND FINTECH HAVE NEVER BEEN GREATER") understanding of different demographics and their unique banking requirements.

This [data can then be put to good use when implementing new features and launching new products that ensure that people never find themselves locked out of the financial](https://www.financedigest.com/data-fake-will-be-the-new-real-in-financial-services-in-2023.html "Data: Fake will be the new real in financial services in 2023") ecosystem. Automating the often-complex process of financial planning is a positive step in reaching this goal – this is another area where [fintechs are leading](https://www.financedigest.com/2022-the-year-that-facial-recognition-will-lead-the-fintech-industry.html "2022 – The year that facial recognition will lead the fintech industry") the way. Platforms like Cleo and Mint have made it easier for people to [manage their finances](https://www.financedigest.com/how-parents-can-help-students-manage-their-finances.html "How Parents Can Help Students Manage their Finances"), encouraging sustainable budgeting with ‘nudges’ and responsible use of financial products to boost financial wellness.

Of course, this leaves the unbanked, whose spending habits and financial resources are a [lot harder](https://www.financedigest.com/dealing-with-sole-traders-debt-recovery-just-became-a-whole-lot-harder.html "Dealing with sole traders? Debt recovery just became a whole lot harder") to analyse. To reach these groups, banks and fintechs of all sizes should look to charities and non-profits like the [Financial Inclusion Commission](https://financialinclusioncommission.org.uk/) and the [Just Finance Foundation](https://www.justfinancefoundation.org.uk/). These groups are already providing financial literacy resources to unbanked or underserved segments, and by tailoring solutions to these groups, [banks and fintechs](https://www.financedigest.com/fintech-v-the-banks-uneasy-bedfellows-or-a-match-made-in-heaven.html "FinTech v the Banks: Uneasy Bedfellows or a Match Made in Heaven?") can have a big impact.

**What banks can do**

The fundamental [lessons that big banks must learn](https://www.financedigest.com/learning-the-lessons-of-the-bangladesh-bank-heist.html "LEARNING THE LESSONS OF THE BANGLADESH BANK HEIST") from fintechs are relatively simple – thinking small, being agile and leaving no one behind can make a real impact on financial inclusion. Creating customisable financial products and services that are suitable for underserved segments is vital, and utilising banking [data and the power of open](https://www.financedigest.com/open-data-represents-the-biggest-challenge-to-banks-in-a-generation.html "Open data represents the biggest challenge to banks in a generation") banking to create useful platforms will help boost financial literacy for consumers.

Where [banks can go one step further is at the policy](https://www.financedigest.com/what-to-make-of-the-headlines-brexit-and-bank-of-england-policy-eba-bank-stress-tests.html "What to make of the headlines? Brexit and Bank of England policy, EBA bank stress tests") level. Banks have the connections, clout and [financial knowledge to influence decision-makers and reinforce financial inclusion as a priority for financial institutions](https://www.financedigest.com/the-future-of-financial-institutions-in-2023.html "The Future of Financial Institutions in 2023"). In today’s world, nobody should be at a disadvantage in the [financial forum](https://www.financedigest.com/mobey-forum-calls-on-financial-services-industry-to-address-evolving-business-models.html "Mobey Forum Calls on Financial Services Industry to Address Evolving Business Models"), and making sure everyone can access the right solution should be a matter of principle.

**_About Author:_**

_Julia McColl is [Chief Product Officer](https://www.financedigest.com/tips-for-choosing-the-right-chief-finance-officer-for-your-business.html "Tips for Choosing the Right Chief Finance Officer for Your Business") at Chetwood Financial. A founding [member of the business](https://www.financedigest.com/why-now-is-the-time-to-implement-a-time-saving-business-model-encouraging-team-members-to-discuss-their-challenges.html "Why now is the time to implement a time saving business model, encouraging team members to discuss their challenges"), Julia has led Chetwood from start-up to scale-up and beyond. She has a wealth of [experience creating innovative consumer-led products that not only deliver](https://www.financedigest.com/how-partnerships-fuel-fintech-innovation-and-help-banks-deliver-a-better-customer-experience.html "How Partnerships Fuel Fintech Innovation and Help Banks Deliver a Better Customer Experience") ROI, but actually make people better off. Previously, Julia led strategic initiatives for Capco clients in [Wealth Management](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant") and Private Banking, and worked at Lloyds Banking Group, where she was responsible for digital transformation across Credit Cards, Mortgages and Personal Loans_


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