Responsible Finance and CIC respond to Lord Holmes' Fintech article
The Community Investment Coalition and Responsible Finance have responded to Lord Holmes' article on inclusivity and funding of Fintech.
The issues surrounding financial exclusion are complex. FinTech, in and of itself, is not going to be the silver bullet to solve them. Most FinTech products are developed to compete with, or ultimately be purchased by, existing market players. Effectively promoting financial inclusion is about expanding the market, not just transforming it, and this requires more focus on what it is about new technology that has the potential for material impact on the financially excluded.
Problems of financial exclusion are rooted in places. Granular data on the types of financial services provided and where they are provided enables the nature and location of exclusion problems to be more effectively identified. Combining other existing data sets with more effective mapping makes more targeted, cost-effective interventions possible from a range of stakeholders. CIC is currently working with the banking industry on deepening existing disclosure, and is looking to expand that data set into other credit markets.
In finance, innovation tends to be thought of with an emphasis on digital tech. However, while this is important and eye-catching, it is not necessarily the most important area of innovation that brings products and services to the financially excluded.
FinTech innovation tends to focus on personalisation and the customer journey, with more popular solutions receiving more attention because they can be scaled more rapidly. To tackle financial inclusion, innovation needs to focus on personalisation and the customer journey to address diverse individual needs in marginalised markets, rather than the largest common denominator. Stakeholders need to draw on behavioural economics insight into the way in which people interact with products and services, and develop models that are committed to serving people, businesses and social enterprises that would otherwise not be served by conventional means.
Responsible providers do just that, with auxiliary services tailored to their needs. In 2016, responsible finance providers lent £242 million to nearly 50,000 customers, helped to start up 8,200 new businesses and created 11,000 jobs, and helped customers to deposit £3 million into savings accounts. This is without the level of investment that the sector in the USA receives, which is around $200 million a year.
Digital innovation has been part of this achievement, but we need smarter thinking about FinTech can be allied to the responsible finance model to help it reach scale and evolve to meet changing consumer needs.