Payments trends report 2024
January 21, 2025
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Discover how AI-driven innovation, blockchain advancements, and evolving consumer behaviours are reshaping the payments industry.
What is this article about?
The financial resilience of UK adults and the role of community finance institutions (CFIs) in promoting financial inclusion.
Why is it important?
It highlights the significant debt burden on UK adults and the importance of CFIs in providing essential financial services to underserved populations.
What’s next?
Addressing barriers faced by CFIs, increasing investment, regulatory support, and collaboration to enhance financial inclusion and resilience.
The state of financial resilience among UK adults is concerning. According to the recent whitepaper, Redefining community finance: Unlocking pathways to financial inclusion, published by The Payments Association (TPA), 62% of the population carries debt, with 16% holding debts of at least £20,000, excluding mortgages.
Furthermore, more than a quarter (27%) have turned to high-cost lenders after facing rejections from mainstream lenders, and over a third (35%) of these individuals struggle to repay the borrowed money.
This has shone a spotlight on the critical role of community finance institutions (CFIs) in providing financial services to the underserved. Regardless of their importance, these institutions face substantial challenges in scaling and innovating due to regulatory pressures, lack of investment and technological limitations.
These obstacles include obtaining funding, public perception, awareness and access to solutions, and leveraging current and future technology to meet evolving consumer needs.
Mastercard Public Policy Director and TPA Inclusion Working Group lead, Pooja Bhachu, tells Payments Intelligence that more focus must be placed on the sector to help “plug the gaps in helping those still financially excluded”.
She says, “We feel that the community finance sector is ripe for investment and growth but needs a supportive policy and regulatory ecosystem.
In addition, Bhachu believes policymakers, regulators, the third sector, and industry should together consider how the sector can help more financially vulnerable people to get access to the financial services they need.
“It’s a sector that has been overlooked, but has a lot of potential if regulators, policymakers and industry give it greater focus take more notice,” she says.
CFIs are often overlooked due to several factors. A significant reason is the lack of awareness among consumers about the existence and services of CFIs, coupled with trust issues that lead people to favour larger, more established banks.
“It was such an integral part of like Victorian and post-war society and communities in Britain; over time, however, that has somewhat got lost,” Bhachu points out.
Accessibility is another concern, as CFIs may have fewer branches and a limited online presence, making them less convenient than mainstream banks. Additionally, there is a perception that CFIs offer limited services and a stigma associated with seeking financial assistance from community-focused organisations.
Regulatory and funding constraints further hamper CFIs’ ability to compete with larger institutions, while historical precedence reinforces consumer preference for well-known financial entities. Addressing these issues can help increase the visibility and utilisation of CFIs, enhancing their role in promoting financial inclusion.
Bhachu says: “Some of it is at times a one size fits all regulatory approach to how the sector is viewed. For example, our recent research found some of the main barriers holding the sector back include access to funding, societal perception, awareness and accessibility of solutions, and harnessing current and future technology that can support their solutions to meet the changing needs of consumers’’.
‘‘If we can address these barriers, we can help bring more people into the financial ecosystem, improve financial inclusion and help boost their financial capability and resilience, bringing wider benefits and growth opportunities for every region across the UK economy’’.
According to Bhachu, CFIs face several significant barriers to growth and effectiveness. A key issue is the stigma and perception problems associated with the sector, which have developed over time as its role in society and local communities has diminished.
Navigating ever-increasing regulatory requirements also poses a challenge for many providers in this sector major hurdle, with Bhachu noting that “the way you regulate big financial institutions should be different; you can’t really have that same regulatory approach to much smaller firms who have a very specific products and services, and serve a much smaller pool of consumers, like co-ops, mutuals and CDFIs.”
Additionally, CFIs are struggling to keep pace with technological advancements, as Bhachu points out that “The CDFI sector and the mutual and Co Op sector. They’re aren’t leveraging innovation, including payments technologies and innovation, in the same way that other financial services firms are.”
This lack of innovation, combined with limited focus attention from industry, regulators, and policymakers, has left the sector at a disadvantage. Bhachu suggests that overcoming these barriers will require targeted support, regulatory adjustments, and increased collaboration to unlock CFIs’ full potential in addressing financial inclusion.
She adds, “If we can do it, this would bring a multitude of profound and far-reaching financial inclusion and resiliency benefits, not only for the millions of people in desperate need of fairer, more affordable, and more accessible financial services but also for the entire UK economy.
As community finance evolves, payment leaders have a critical role in promoting financial inclusion. By implementing innovative strategies and utilising available resources, they can significantly impact underserved communities and ensure access to essential financial services.
Jayne Sibley, CEO and co-founder of Sibstar believes that expanding financial inclusion should be a priority for all payment leaders. She tells Payments Intelligence, “Partnering with NGOs, charities, and community organisations can significantly drive this mission.”
Sibstar’s collaboration with the Alzheimer’s Society bolstered its credibility and helped it connect with its target audience, preventing more people living with dementia from being financially excluded.
“Collaboration with financial organisations is equally vital. By partnering with banks and other financial institutions, payment leaders can expand their reach and offer a wider array of services. At Sibstar, our partnership with Mastercard helped us earn our customers’ trust and reassure people living with dementia and their families about the legitimacy of our offering.
According to Sibley, financial literacy should be another key focus area. Comprehensive education programs are essential to helping users understand and effectively use financial products.
She says: “These programs should be delivered through various channels, including in-person workshops, digital content, and strong customer support services. Payment leaders should look for ways to fund or support these programs to enhance financial literacy on a larger scale.”
“By embracing these strategies, we can significantly advance financial inclusion and empower underserved communities.”
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