Providers tap into the market of 9 million UK adults ‘failed’ by traditional banks
More people in the UK are opting out of the traditional banking system according to research conducted by the Prepaid International Forum (PIF) and instead opening ‘Banking Lite’ current accounts in order to better manage their finances.
One of the leading providers of such accounts, APS (which operates the Cashplus account) reports that money in its accounts nearly doubled to £3bn in just 11 months during the last financial year.
PIF believes that such growth is partly fuelled by the large numbers of UK adults who have been frozen out of the traditional banking system as well as those simply looking for an alternative solution.
Alastair Graham, spokesperson for PIF, says:
“We know from the Government’s own reports on financial inclusion, that over 9 million UK adults (17% of the adult population) do not derive any benefit from the traditional banking system*.
“This includes those who are unbanked, those who hold basic bank accounts but still manage their finances in cash, as well as those who have bank accounts but are paying over £100 or more each year in fines or fees.
“This group sees the increasing financial benefits of paying bills through direct debits, obtaining online discounts for goods and services or the convenience of having salary or benefits paid directly into an account. However, they are often frozen out or penalised by banks that see many of the people within this group as unprofitable customers or a bad risk.
“Many are refused access to full accounts that enable them to enjoy the benefits and savings of modern day financial services.”
So-called ‘Banking Lite’ accounts operate outside the traditional banking system and are fully regulated by the Financial Conduct Authority in the form of prepaid cards. These cards are loaded with money (e.g. transferred from an employer or in the form of government benefits) and then can be used in the same way as a traditional debit card.
To target disaffected bank customers or those who are unbanked, providers have developed innovative solutions to offer customers many of the benefits of a traditional current account, without the need for credit checks or delays in gaining approval.
As a result customers are able to manage direct debits, have government benefits paid directly into their accounts and even improve their credit rating by accessing features designed around their needs.
Rich Wagner, CEO of APS, says:
“People are quickly realising the truth is something Bill Gates said way back in 1994, that banking is necessary, but banks are not.
“We have been in operation since 2005, but have seen more growth in the last year than in the previous nine.
“Although we have a wide variety of customers using our Cashplus account, many are now clearly using us as an alternative bank. As a result these customers are able to gain access to the benefits of banking services without the need to ‘earn’ access from a traditional retail bank.”
Research into how consumers are using such accounts reveals that 64% of customers have their wage paid into their account, 15% use it to receive government benefits and 22% to pay direct debits **.
This trend mirrors that of the US where 20 million adults are believed to be unbanked***. Here increases in banking fees have caused many people to choose alternative ways to manage transactions.
Chuck Harris, president of NetSpend, which serves 68 million customers in the US, says:
“The UK is following in the footsteps of the US, as customers begin to realise that there’s actually no such thing as free banking, especially for those on low incomes.
“This change should be welcomed and will improve financial inclusion. Unlike the banks, who see these customers as low profit and high risk, these new providers have an incentive to innovate around their specific needs and circumstances.
“This innovation helps to reduce the ‘poverty premium’ – the cost of being poor – and enables those on low incomes to play an active role in fast-changing and increasingly digital economies.”
MasterCard’s Eimear Creaven, Group Head of Prepay and Growth Markets, comments:
“MasterCard is committed to driving financial inclusion and welcomes the work of the Prepaid International Forum in highlighting the opportunity prepaid offers to meet the genuine financial services needs of consumers in an ever more digital society. This supports the work of the independent Financial Inclusion Commission who identified in March this year that by offering ‘cash-like’ control, pre-paid solutions can provide an alternative to mainstream accounts and can help people manage their money more effectively.”
NOTES TO EDITORS
* Source: Financial Inclusion Taskforce, “A new approach to banking report”
** Source: APS 2015
*** Source: World Bank 2015
The Prepaid International Forum (PIF) is a principal trade association for the prepaid industry. We believe that prepayment is a responsible way to pay for goods and services, and that consumers should be confident in the security of prepaid services and the money that is stored on their behalf.
Established in 2007 as a not-for-profit organisation, PIF works closely with industry, regulators, government departments, consumer bodies and the media to promote understanding of prepaid as well as providing support and education to proponents of prepaid worldwide. To learn more about PIF visit www.paymentsinnovationforum.org
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