It may seem impossible to live in modern society without a bank account, however, research from the Financial Conduct Authority suggests that around 1.1 million UK adults are ‘unbanked’. Why is this and is there a correlation between being unbanked and being financially vulnerable?

Money Management with a Bank Account

A bank or building society account provides a protected place for your money. It’s a place where wages, benefits and other income can be directly paid. Account services enable you to set up direct debit payments to cover monthly bills.

In addition, a debit or credit card is provided with most accounts and that makes it easier to pay for goods and services. As many organisations only accept ‘card-only’ payments, this has become a necessity. Equally, the facility to view statements and even have a free overdraft aid money management.

So, if banks provide a safe and convenient place for your money, why are so many adults unbanked?

Why are 1.1 million people Unbanked in the UK?

Of those classified as unbanked in the FCA data*, around 40% had a form of account, such as post office savings, which could be used for day-to-day purchases. That still leaves 0.7 million.

The reasons that prevent individuals from getting an account include:

• Insufficient funds to meet the minimum balance requirements
• Put off by high fees for bank services
• Distrust of banks
• Being blacklisted due to past financial behaviours
• Controlling relationships that deny any financial independence
• Wanting to stay off the radar to avoid debt collectors or abusive ex-partners
• Favouring family or community banking schemes
• Account applications declined by the bank

The FCA research suggests that 22% of the unbanked want an account, 53% don’t and the remainder are unsure.

Interestingly, 4% of the UK population of 18-24 year olds are unbanked. Of these, 44% are currently economically inactive; for example unemployed or students. However, this is significantly higher than other age groups and may indicate a discord between young people and financial institutions.

What are the Disadvantages of being Unbanked?

Firstly, as utility, water, phone and broadband companies are keen for customers to set up direct debits, these often offer the best deals. The same applies when paying for Council Tax and other Government services. As a result, those without a bank account pay hundreds of pounds more for services every year.

The FCA data reveals that there are higher concentrations of unbanked adults in areas of deprivation, the unemployed and long-term sick. These are people who can least afford to pay a premium due to their chosen payment method.

Additionally, paying for goods and services is more difficult in an increasingly cashless society. The result is another experience of financial exclusion. Finally, it is difficult to get a loan or mortgage without a current account.

What is a Basic Bank Account?

To prevent financial exclusion, banks are expected to offer a Basic Bank Account (BBA) to individuals who do not qualify for a current account. These offer limited deposit and withdrawal facilities, with a cash card, rather than a debit card. However, the FCA research showed that 35.7% of BBA applications had been denied.

The banks’ list of reasons for declining a BBA included:

• Out-of-area applications
• Suspicion of fraud
• Customer behaviours – abusive to staff

What Can Banks Do to Address Financial Exclusion?

The FCA is putting pressure on banks to reduce financial exclusion. They want to see proactive changes that help more people to get an account.

In a recent speech on financial inclusion**, the Chief Executive of the FCA, Nikhil Rathi outlined measures that they were looking to banks to put into practice. These include:

• More information and practical help with opening accounts
• Alternative options for customers who are unable to supply ID
• Collaboration with third-sector organisations to reach people in need

Greater Empathy and Inclusion

In my opinion, engaging with financial institutions can be daunting to those with low financial literacy or confidence. No one likes talking about money and this is especially hard when you are in debt or struggling to budget. Equally, if you have a poor financial history, you may feel that you will be judged, even if you have turned things around.

Providing clear information, spending time explaining terms and setting up systems that help people to budget could help the financially vulnerable to regain control.

I am aware of some good practices, such as the TSB Emergency Flee Fund*** for Women wanting to escape abusive relationships. This is a result of fresh thinking and the introduction of non-standard practices to help, not judge, those in financially vulnerable situations.

With pressure from the FCA, we should see a growing number of innovative solutions to prevent financial exclusion.

* https://www.fca.org.uk/publication/financial-lives/financial-lives-survey-2022-key-findings.pdf

** https://www.fca.org.uk/news/speeches/time-enlightenment-financial-inclusion

*** https://www.tsb.co.uk/news-releases/tsb-launches-emergency-flee-fund-for-domestic-abuse-victims/