Tackling Financial Exclusion (Financial Exclusion Report)

Lord Holmes of Richmond Excerpts

Monday 18th December 2017 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, it was a pleasure to be a member of the Select Committee so excellently chaired by the noble Baroness, Lady Tyler of Enfield. I must also thank all the staff, advisers and clerks who enabled us to pursue such a positive route through the committee’s inquiry. Most of the 22 recommendations are still to be considered and taken on by the Government. What are the Minister’s thoughts on the 14 recommendations still to be covered in the government response?

I shall limit my comments to the three Ds of duty of care, data and digital and technology. It seemed pretty clear throughout our inquiry that duty of care would be an eminently good thing for all financial services and financial institutions to adopt. We received significant evidence on this, not least from Macmillan Cancer Support. Even if people consider a duty of care only for purely selfish reasons—given that one in two of us is likely to face a cancer diagnosis in our lives, there is a 50:50 chance that we will act just in our self-interest—obviously, we should go far beyond that. It makes sense for both customer and service provider to understand how this duty of care should work. I pay tribute to Macmillan Cancer Support for the brief it gave to the committee. I also pay tribute to those who discussed this point on the Financial Guidance and Claims Bill, which has just gone through the House. Macmillan Cancer Support clearly demonstrates how a modern, lean, effective charity should operate, not just in giving sensational care to people at some of the most delicate, painful times in their lives but in understanding the total life experience of people who receive a cancer diagnosis.

I tabled an amendment on duty of care to the Financial Guidance and Claims Bill in Committee and on Report. However, the Government were not minded to accept it. In the light of that, I ask the Minister: if nothing is to be done on this point until after Brexit, particularly from the FCA’s point of view, what do the Government intend to do in the interim to address this fundamental point of duty of care to all customers? This takes financial institutions back to the purpose for which they were established. That purpose was based on a relationship. We need to bring that into how financial services will operate in the future. We have an opportunity to do so through the data now available and what it is now possible to do with data. We should use it not just to enable policymakers and institutions to understand people’s predicament when they find themselves at the sharp end of financial exclusion and assist them, but use it in a predictive and granular way to enable individuals themselves to grip their own data and understand on a minute-by-minute, second-by-second basis, if they wish, how their actions impact on that data. That takes us to the digital opportunity. In this situation, finance technology—fintech—is all predicated on that data. What could that do in terms of the issues of the unbanked?

We know that if people are enabled to get online and have an online bank account, they can save £500 to £700 a year, which is not an insubstantial sum. There are significant products and businesses out there, such as MyCard, dopay and Pockit, to name but three involved in this space. Other noble Lords have already alluded to how the connection between financial and digital exclusion is key to understanding this. It is all well and good to have potential solutions online, but if people are not online, see no reason to be, and have understandable care and concern about going online, no solution will ever come from that, even though huge cost savings are to be made from those online solutions.

Financial literacy is incredibly important. On the point made by my noble friend Lord Patten, he is quite right that there should not be an inexorable dumping of more and more responsibilities on our fantastic teachers. However—I am prepared to get into a discussion—for financial literacy at all levels to go into the curriculum I would be prepared to look at what we could take out in a nightclub-style one-in, one-out approach. Without financial literacy, you can teach a heck of a lot to young people which will never have any positive impact because of the detrimental effects of finding yourself at the wrong end of financial exclusion.

As has already been mentioned, bank branches are gone. We need to consider what more can be done in the community. With the Open Banking initiative, there is the potential to have clusters of fintech businesses based in the community so that people cannot only interact online but can have that physical presence and, on the point made by the noble Lord, Lord Fellowes, they can meet people face-to-face to discuss financial matters. If the right encouragement is given and it is made possible for chatbots to be put in place, people may be able to have conversations with them which may be more comfortable, and it may be possible for more questions to be asked through that means than through more traditional approaches.

Fintech is not the totality of the solution but it contains many of the solutions. What is phenomenally encouraging—we see it through the Tech City initiative—is that so many of the young people who are founding fintech companies are doing so to address so many elements of financial exclusion. They do so not as charity, as CSR or as a “nice to have”, but because it is in their DNA and they can drive fantastic business models of these issues, which, all too often, traditional financial institutions have just been able to not engage with and ignore.

A potential golden thread runs through fintech, where cost can be taken out, customer experience and service can be put in and, crucially, financial inclusion can flow through that route. Probably the most pernicious of all elements in all our work on the committee and beyond is: how can it be that in the fifth-richest economy on the planet, those who all too often have the least are forced to pay the most for their financial services?

I spare a fourth D—a slight detour, which I must take in this discussion. It is impossible to consider these issues without taking some time to talk about gambling and the impact that that currently has on our community and society. Just look at the number of gambling institutions on high streets in lower socio-economic areas compared to the leafy suburbs. I ask the Minister a specific question: when will the Government take clear, definitive action on FOBTs? I know that we have a consultation, but with fixed-odds betting terminals you can lose £100 every 20 seconds—£300 in a minute. Spin number one: there goes the rent; spin number two: there goes your food; spin number three: there goes your hope.

That and more was the purpose of undertaking the Select Committee report on financial exclusion. It was a joy to serve alongside noble Lords and, as I say, to have the excellent chairmanship of the noble Baroness, Lady Tyler of Enfield. To conclude on a specific point, I encourage all fintechs to look at—as they already do—every possible way to get involved, to come up with innovative, cost-effective, empowering, enabling solutions to financial exclusion. Can the Minister ensure that the Government do everything in their power to enable that flourishing fintech sector to continue to boom, not just now but through and beyond Brexit?