EPA report explores how fintechs can tackle financial exclusion

This comes at a time when over 10 million adults in the UK cannot access affordable credit, often because of low credit scores or badly designed credit products. However, new financial technology, most notably inclusive credit, can offer a way out of precarity for millions of people. Many citizens of the UK are worse off than they were this time in 2020, and with insecure incomes, a job that has been furloughed or no job at all, many people are turning to credit to cover monthly expenditure against income losses. However, the current market does not cater for this increase in demand - instead, over 10 million adults cannot access affordable credit, a problem known as financial exclusion. 

The credit arena has not seen enough innovation, and due to consumer protection regulation and an uncompetitive market, consumers are forced to turn to high-cost credit (often so-called ‘payday loans’), which can trigger a spiral into debt, with 14.2 million people currently at risk of ‘problem debt’. However, the report ‘Low-Cost, High-Tech Credit: Solving financial inclusion through innovation’ seeks to inform policy-makers and the regulators across the fintech and payments community about the difficult challenges consumers are facing, whilst also highlighting some of the inclusive fintech companies who are helping them. 

Insight for the report was collected through 10 in-depth interviews with industry stakeholders from charity organisations, fintechs, credit providers, and academic institutions and is split into four key sections: 

• Consumer Credit: Highlighting why people use credit, why it costs the consumer so much right now and how the lack of tailored credit products, both in product design and the business models of providers, is a definitive cause of financial exclusion.
• Financial Exclusion: Explaining why people cannot access credit and can therefore fall into problem debt. It also details the harm that this high-priced credit and financial exclusion can cause.
• Inclusive Fintech: fintech firms are well-placed to shake up the market and make affordable credit available to millions more people. The report showcases key areas of innovation, including improved customer data, new means of assessing and decreasing risk, inclusive product design and alternative business models.
• Market Overview: Exploring several fintech firms disrupting the credit landscape today. These firms are innovating in areas like credit building, using open banking to assess lending risk and buy now pay later schemes to enable lower cost and risk for both parties. The report also seeks to provide a market overview of the fintech firms that are well-placed to shake-up the market and make affordable credit available to millions of people.