An entitlement to a bank account will not solve all the problems of financial exclusion – we need a People’s Bank
The word on the street (OK, in the Guardian) is that tomorrow’s Budget will include an entitlement to bank accounts for everyone.
Over 1.8 million adults in 1.3 million households across the UK still lack any form of bank account, and while that doesn’t sound particularly shocking in itself, the ramifications of not having an account can be huge. Without somewhere to pay your wages into every week, unbanked people are effectively excluded from large swathes of the regular employment market, instead taking low-paid, cash-in-hand jobs. Even then, cashing your wage slip at the end of the week at a cheque-cashers means immediately handing over up to 10% of your paypacket, just to access your money. Without a bank account, you can’t take advantage of direct debits or online offers on gas, electricity and water bills, and it’s usually the poorer members of society who get hit with these larger standard-tariff bills.
So I very much welcome the idea that everyone will be entitled to at least a basic bank account, regardless of previous credit rating. However, this alone won’t tackle the massive problems caused by financial exclusion. Proving who you are when opening an account is likely to remain a significant barrier for many people. In theory, you don’t need a passport or driver’s licence to open a bank account; a range of ID is acceptable, including letters from your benefits agency, hostel manager or care home. In practice, bank counter staff often either don’t know about the wide range of acceptable ID, or are unwilling to accept ‘softer’ forms of ID. Under legislation designed to tackle money-laundering, the bank clerk who opens an account which is later used for fraudulent activity is held to be directly responsible, so bank staff are understandably cagey about accepting ID that differs from the norm. Lack of ID is a particular issue for older and married women, many of whom have never had utility bills in their names.
But just having a bank account in your name isn’t enough, if you never use it. Being underbanked is as much of an issue as being unbanked. If you’ve got literacy or numeracy issues, or English isn’t your first language, or you’re just not comfortable being in a formal setting like a bank, it’s going to be difficult for you to get what you want from your bank account. People who find it difficult to manage their money, particularly at the end of the month when funds are tight, often see their bank accounts closed due to unauthorised overdrafts or bounced cheques, while others are hit with huge bank charges for small mistakes. Few banks provide any sort of specialist support for people who have just opened up their first basic bank account – there’s little margin to be made in operating simple current accounts. We need to do more to tackle this – the FSA’s Moneymadeclear money guidance service is a great start, but we need to make the business case to the banks that educating consumers to get the most out of their basic bank accounts will help them up-sell more sophisticated (and higher-margin) savings and loan products.
That’s why I’m hoping that, as expected, the Labour manifesto will include a firm commitment to setting up a People’s Bank through the Post Office. Similar schemes in Ireland, France and New Zealand have already proved very popular, bridging the gap between cheque-cashers and money shops and large, imposing financial institutions. Even with the continuing closures, there are more Post Office branches across the country than branches of all of the banks combined, so their reach is unparallelled. Offering another revenue stream in the form of cheap simple financial transactions will also help to keep neighbourhood and village post offices open. But the Post Bank must tread a fine line, appealing to a wide range of consumers. It cannot continue with the Post Office’s current product offer, pitched squarely at financially capable middle-income workers, but neither can it become a bank solely for poor people, with the stigma that this would entail.
Financial inclusion isn’t an issue that’s particularly sexy, or attention-grabbing. But it’s one that will become more and more important in the future, as the march of technology leaves many behind. And it’s Labour who are leading the way.