We often speak about the poverty premium – how poorer people pay more for products and services than people who are better off. As we move further towards digital payments (fuelled by the Coronavirus), the risk of the poverty premium widening is great.
Fourteen million people who live in poverty in the UK pay more for essential services – on average an extra £490 a year. By essential we mean things such as a bank account, insurance, credit and energy to heat our homes. This is according to research from Fair by Design, a movement dedicated to ending the poverty premium.
More than a quarter (26 per cent) of disabled people feel that they have been charged more for insurance, or denied cover altogether because of their condition. Having a mental health condition is also likely to affect our ability to access financial services.
Even when access is possible, for many the experience of using financial products or services is a negative one. We might spend hours on the phone, or struggle to understand poorly worded communications. The truth is these markets aren’t designed with everybody in mind. If we are at a disadvantage, or ‘vulnerable’ in any way, it’s likely we will end up either paying more for something or being excluded altogether.
A recent survey by the Financial Conduct Authority (FCA) showed that 27.7 million adults in the UK now have characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience or low capability. The Financial Lives Survey also found that the number of consumers with low financial resilience – meaning debt, low levels of savings or low/erratic earnings – has grown from 10.7 million to 14.2 million.
We look at what is being done by organisations in our sector to make a change before it’s too late.
A CASHLESS SOCIETY
The way we are paying for things is also changing. And this has been exacerbated by Covid-19. In a survey by Which? 34 per cent of people said they had been unable to pay with cash at least once since March when trying to buy something. Many businesses are being forced to go cashless because they can’t bank cash takings due to their local branch being closed or too far away. Once again the people who suffer are those without computer access or a credit card.
Lockdown has also led to a decline in the number of cash machine withdrawals; research by YouGov for the ATM network LINK, shows a 60 per cent drop. A report by Which? revealed that ATMs are disappearing at an alarming rate, with 259 communities in the UK living in ‘cash deserts’ with no ATMs or just one in the neighbourhood. The change could leave behind an estimated 20 per cent of the population who rely on cash – particularly the elderly and those living in rural areas.
“Everyone should be able to access their preferred payment method without penalty. Covid-19 may have accelerated take up of digital payments, but for many people on low incomes, cash helps with budgeting.”
Sohaib Malik, Policy and Communications Officer, Fair By Design
Banks are adding to the problem, with up to one in ten branches at major banks refusing to handle change. Lloyds Banking Group – which includes Lloyds, Halifax and Bank of Scotland – has 55 coinless branches, while HSBC has 20. Almost 10 per cent of Santander’s branches are coinless.
People who have a basic bank account are also going to be hit. Basic bank accounts are primarily for those on low incomes or who have had previous debt/poor credit history. While money can be paid into the account, it can only be withdrawn over the counter or at a cash machine.
At Clean Slate we work with many people who are in this position.
CASE STUDY
Our client is a disabled woman with two children aged five and eight (one has autism). She lives in a remote village and there is no post office or cash point for 5 miles. She told us about having to get a bus in the middle of lockdown with her children, to take out £5 to buy some groceries. The bus fare itself cost her £7.50 for an adult ticket and around £3 for one of her children.
She is one of many who has a basic bank account, which means she can only get cash out of an ATM. Without access to a laptop she is unable to buy anything online, and would need a debit card to do so.
PROTECTING THE VULNERABLE
Despite a push by regulators to put protective steps in place, experts warn this isn’t enough. Natalie Ceeney, a business woman and civil servant who wrote the Access to Cash Review, said: “My real fear is that we are sleepwalking into a future where millions get left behind. The government needs to urgently legislate to protect the viability of cash – as it promised to do so last year. Time is running out.”
In January the FCA asked firms to reconsider any branch closures during the current coronavirus lockdown, “particularly where this could have significant impact on vulnerable customers.” The following month the regulator published guidance for retailers on the fair treatment of vulnerable customers.
Nisha Arora, Director of Consumer and Retail Policy at the FCA said: “The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.”
In response to growing calls for action the government has announced plans that would enable people to ask for cash from local shops – even if they do not buy anything. The Treasury said that while it had no plans to demand that shops accept cash, cashback from stores of all sizes without the need to make a purchase, could play an important role in the future. Trials to test ways to solve problems around access to cash are currently underway, however they have months to run before any conclusions will be made.
In the meantime the Treasury has called on the FCA to take control of securing the future of cash.
CONTACTLESS PAYMENTS
Adding to the problem is a dramatic shift in how we are paying for things. Increasingly we are using contactless cards or our smartphones in supermarkets, restaurants and bars. Figures show that the number of contactless payments has risen significantly in recent years.
When Covid hit in April last year, to protect workers and consumers, the single payment limit was increased from £30 to £45. In August, a record total of £8.4billion was spent on credit and debit cards using contactless methods. The FCA is now reviewing further changes which could see the limit rise to £100. While this is being encouraged by businesses and some consumers, it could isolate vulnerable customers even more.
HOW WE CAN HELP
A recent report has been published by Fair By Design and the Money Advice Trust with guidance for firms who design financial products and services. What they want to see is more firms identifying who ‘vulnerable’ customers are and examining the potential for harm when certain customers experience a bad outcome. This could mean carrying out focus groups, talking to frontline staff, working with specialist organisations or charities, and reviewing complaints. They recommend these factors are built into a company’s processes for reviewing and launching new products on the market.
They call this ‘inclusive design’. What it looks like in reality could be things like providing letters and brochures in braille for customers with visual impairments, and ensuring digital tools are accessible with a screen reader. Translation support for customers who don’t speak English as a first language is another feature.
Digital bank Monzo went a step further. Working with the Money Advice Trust and charity Surviving Economic Abuse, they created a feature for people in abusive relationships. They recognised that some customers were concerned about disclosing their situation through the customer support chat, as a record would be accessible through the app for anyone with access to read it.
Working with experts from the Personal Finance Research Centre they developed a separate ‘Share With Us’ feature as part of the ‘Help’ section, with no trail of disclosure in the app. Customers share details that go straight to Monzo’s Vulnerable Customers team. This specialist team decides how to respond on a case-by-case basis, ensuring any response is sent through a discreet channel to protect the customer from harm. There’s also a code word system in place to help customers experiencing financial abuse.
There are other examples cited in the report of similar collaborations; home finances company Youtility teamed up with Citizens Advice to build a platform to help consumers save on their broadband, energy and TV costs. Meanwhile Bristol Energy has been testing out two energy models on households across the UK over a year – a fixed price and pay-as-you-go. At the end of it they will be able to see which is the cheaper option. Samantha Nicol, Head of Innovation and Marketing at Bristol Energy, said: “By testing ‘Heat as a service’, we can truly understand what our customers need, rather than just giving them what we think they want.”
What these projects all have in common is a collaborative approach. It’s only by working together that a truly successful outcome can be reached. Combining the insight from organisations like ours with financial institutions, is what’s really going to make a difference to the sector in the long term.
Malik adds: “Rather than moving to ‘digital by default’, regulators and businesses should start with people where they are, and co-design with them. It’s from here that the best solutions can be found.”
