Long reads

Should credit models that offer greater financial inclusivity be created?

Madhvi Mavadiya

Madhvi Mavadiya

Head of Content, Finextra

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.

Sugihara also mentioned that millions of borrowers across the UK continue to be locked out of mainstream credit or are forced to accept credit products that don’t suit their needs, may be inappropriate, or that they will struggle to repay. “To combat this, the industry needs to shift its focus to prevention rather than cure, and financial institutions need to identify vulnerable borrowers and offer tailored financial support at a much earlier stage.”

Brendan Jones, CCO, Konsentus’ view is that “fintech firms in the UK need to ensure they educate consumers on the products and services that are available and how these can support financial inclusion and financial wellness by providing the best advice and competitive offerings.”

Neil Kadagathur, co-founder and CEO, Creditspring had a similar view. Considering macroeconomic factors, borrowing in the UK will increase and if these “borrowers struggle to access mainstream forms of credit and are at the mercy of unscrupulous or unregulated lenders,” “as the cost of living continues, it is vital that lenders create credit models that offer greater financial inclusivity.”

Kadagathur continued to say that transparency in this area also needs to be improved. “Borrowers should be made clear from the start what their credit is going to cost them. Unfortunately, many lenders operate in a way that is deliberately opaque, encouraging vulnerable customers to take on further debt which then dangerously risks debt spirals.”

Laura Rofe, director of partner development, PPRO, also believes that education is key to increasing financial inclusion and the fintech industry should “promote financial literacy and knowledge sharing to bridge this gap. Secondly, companies that enable financial inclusion should lead by example and share their approaches to solving this problem. Fostering diversity within fintech firms can help ensure that the products and services they develop meet the needs of a wide range of individuals and businesses.”

Bringing all points together, Huw Davies, co-founder and CCO, Ozone API, summarised that there are “many propositions (initially based on pre-paid card platforms) targeting sectors that have been traditionally excluded from mainstream financial services. Whether that is migrant workers, those with limited credit history, kids and teens, or the financially vulnerable.”

Davies concluded: “More recently the shift towards open banking has created new foundations upon which to build better propositions to help financial inclusion. Access to account information provides a powerful tool to help more people get access to credit, reducing reliance on the traditional ‘credit score’, which is dependent upon reporting of existing credit agreements, so that lenders can more accurately assess income, see regular payments such as rent and bills and more effectively understand affordability. All of which enables better credit decisions and reduces the significant cost of new credit relationships, bringing down the barriers so more individuals and businesses can access credit.”

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