While rising costs could create new challenges for financial inclusion, regulation plays an important role in driving financial inclusion and improving outcomes for individuals and communities. Financial inclusion is a complex issue that requires strong partnerships and collaboration across the government, regulators, and other organisations such as fintech firms.

This is an excerpt from The Future of Fintech in the UK 2023: An Innovate Finance Global Summit and UK Fintech Week special edition' report.

According to Inclusion Foundation, around 13 million adults in the UK currently face financial exclusion. The Covid-19 pandemic and the cost-of living crisis have shone a light on the importance of basic financial services to consumers across the UK, and the impact no bank account, no option to pay with cash or access to the Internet can have.

The UK’s financial services industry offers alternative products and services, but they remain inaccessible to some people in the country. Individuals need a current or checking account to be paid a salary, to keep their money safe and pay bills. Further to this, affordable credit enables many individuals to buy goods, spreading repayments over time, and manage cash-flow shortages and insurance helps consumers withstand financial shocks.

However, the credit that is open to individuals with a lower income requires costly monthly payments and the insurance products that is available require higher premiums. In addition to this, savings, pensions, and investments are important for buying a house, retirement, and later life care, but they are not always available to those who are less well off.

The consumer journey to financial services should be transparent and accessible, including to individuals that have characteristics of vulnerability. Financial institutions and fintech firms have a role to play and the new Consumer Duty rules will help shape this.

Consumer Duty comes into force in June 2023, requiring banks and other financial institutions to drastically improve their consumer protection efforts. In preparation, the FCA has published a review of how firm are planning to implement the changes, finding that many have established extensive programmes to comply with it properly.

Matt Davies, head of UK market development, Nova Credit, believes that the Consumer Duty rules will “create a fantastic springboard for fintechs that exist to encourage and facilitate greater financial inclusion and wellness. From July, 60,000 UK financial services companies will be required to follow Consumer Duty guidelines to ‘fundamentally improve how firms serve consumers.’ If fintech leads, the others will follow.”

Davies added that “UK fintech firms should be at the vanguard of the Consumer Duty rollout. They can move faster, be more agile and adaptable and execute greater innovation than many of the incumbent finance giants in our sector. They need to harness that opportunity to either lead the way to demonstrate how inclusiveness really works or pay more than just lip service to the principles of financial wellness, or they can offer more products and services to the financial inclusions for whom innovation is slower and less innate.”

Sho Sugihara, CEO and co-founder of Fuse by Pave, agreed that Consumer Duty is a positive step, but the industry needs to do more to protect borrowers and boost financial wellbeing. “If we’re going to build an improved financial system, lenders will need regulatory and financial expertise from fintech support solutions.

“To finally democratise access to borrowing and offer consumers fairer financial products, the financial system needs to be transformed. To boost financial inclusion, financial institutions need to first focus on customer outcomes – using data insights to empower borrowers by providing more choice, flexibility, and appropriate credit products.”