Toward financial inclusion: Shaping a national strategy for the UK

With 44% of UK adults facing financial vulnerability, a national strategy seeks to close the gap through policy, innovation, and education.

In December 2024, HMT announced the appointment of a Financial Inclusion Committee, tasked with advising the government on developing the first-ever National Financial Inclusion Strategy.

The National Financial Inclusion Strategy, first pledged by the Labour Government as part of their Growth Manifesto, is due to be published by the end of 2025. It aims to support vulnerable individuals in accessing banking services, building savings, and improving their financial resilience.

The Government’s decision to develop the Strategy reflects the growing number of financially vulnerable consumers in the UK. A 2024 report by Fair4All Finance found 20.3 million people now live in financially vulnerable circumstances across the UK, up 16% from 17.5 million in 2022. Their research revealed that financial difficulties could stem from a range of reasons, including adjustments to circumstances due to rising costs and the cost-of-living crisis. They found that almost three million people had fallen into financial difficulties in the year preceding publication, meaning that 44% of UK adults are classified as financially vulnerable.

Acceptance of cash

One way the Treasury is currently addressing financial exclusion is by promoting access to cash for consumers and encouraging businesses to accept cash. The Treasury has recently published a report investigating cash acceptance across the UK, reflecting concern that there is currently no legislation requiring UK businesses to accept cash from consumers.

Nick Quin, chief corporate affairs officer at Link, comments, “A critical point in the report is the Treasury Select Committee’s call to join the thinking between cash acceptance and digital inclusion. We need to make sure that we join up the thinking to avoid leaving cash users behind, and as the report says, risking a two-tier economy.”

Link is a member of The Payments Association’s Financial Inclusion Working Group, which brings together experts from across the payments industry to tackle financial exclusion and the poverty premium through informing and collaborating with the government, regulators and the third sector.

Alongside the suggestions in Treasury’s report, the working group aims to highlight the innovation happening across the payments industry to improve financial inclusion, especially in the digital inclusion space, which can complement Treasury’s efforts to maintain access to cash. Working group members

recognise the need to alleviate the challenges that financially excluded consumers face. It has also identified three key areas where effective and sustained action can be taken.

Investing in community finance solutions

Last year, the working group delivered a ‘Redefining community finance’ report on how community finance initiatives are an underutilised solution to financial exclusion. CDFIs and community finance services are lifelines for many financially vulnerable consumers, but they do not have the resources to reach the audience that could most benefit from them.

The report identified several barriers preventing this necessary growth, including access to funding, public awareness, and the inability to fully harness current and future technologies. The report made a series of policy recommendations that could break down these barriers, which the working group brought to MPs, regulators, and key industry stakeholders for a vital discussion in Parliament:

Introduce a kitemark:

A lack of awareness about the safe and viable community finance services available to financially excluded consumers is a significant barrier to their widespread adoption, as consumers often lack the trust necessary to approach them. For instance, in a city of almost 9 million, the London Mutual Credit Union reports only 36000 members.

Creating a recognisable symbol of outstanding quality, safety, and trust for organisations supporting underserved consumers would drive trust among the public and generate a better understanding of community finance solutions.

Incentivise and legislate greater engagement with the community finance sector:

The Government should foster targeted investment incentives for community finance institutions to draw upon. This could mean forms of support such as mentorship programmes and better signposting initiatives.

Relax the common bond and credit broking barrier to affordable credit:

The Money and Pensions Service estimates that more than nine million adults across the UK were declined credit in just 12 months between April 2022 and 2023, and this figure is only expected to grow. CDFI’s and community finance organisations are key players that could effectively assist this considerable group of consumers who are struggling to access mainstream banking services due to limited credit history, unstable savings, or lack of required details.

Relaxing the common bond and credit broking barrier would enable charities, businesses and community organisations to increase access to affordable credit. These changes would be unlocked by the Government expanding its existing exemption for Registered Social Landlords to all appropriate organisations.

KYC and customer authentication innovation

For most mainstream banks and fintechs, KYC (know your customer) and customer authentication are key steps in verification processes that allow customers to access products and services.

Traditional forms of customer verification can be a barrier in themselves; for instance, many disabled or isolated consumers are unable to easily visit bank branches to set up accounts or apply for services. The move to digital authentication for many companies has been a great step in the right direction, but there are still many aspects of the process that exclude certain demographics.

Kat Cloud, head of government relations at Sumsub and a member of the working group, highlights Sumsub’s recent research, which reveals over 627 million people are unfairly excluded from, or struggle to access, essential digital services, such as financial services. Missing mandatory information for signing up for these products and services, such as lacking a bank address, proof of income or accepted ID, is an issue that frequently leads to the financial exclusion of consumers. Cloud notes that “Digital exclusion stems from several factors, often driven by verification systems that fail to accommodate the diversity of human experiences.” Not only does this affect vulnerable groups such as those experiencing homelessness, often exacerbating the issue, but also those migrating to the UK who do not yet have a permanent address or accepted form of ID.

Another member of the working group, Ray Nasrullah, head of AML & MLRO at Unlimit, echoes Cloud’s sentiment: “I see firsthand how traditional KYC processes can unintentionally exclude vulnerable customers; those without fixed addresses, standard ID, or access to digital tools.”.

Further innovation in this space could enable whole communities that have previously been excluded to access mainstream products and services, thereby boosting the economy and advancing social mobility. Cloud adds, “The industry must remain committed to adopting innovative products, such as document-free verification, to ensure individuals without conventional identification can access essential services.”

Nasrullah agrees, “Smarter, more inclusive KYC helps us meet our regulatory obligations while ensuring no one is denied access to essential financial services.”

Holistic approach to financial education

Financial education remains a significant barrier to financial inclusion, even in this information-rich era. Without the knowledge and awareness of the inclusive products and services available to them, financially vulnerable consumers are left with few choices for safely handling their finances.

Research conducted by Aberdeen PLC found that 23.3 million UK adults have poor financial literacy, and recent research by the FCA revealed that 14.6 million (28%) were struggling financially or finding it difficult to cope.

Better education on money management should be provided in schools and more should be done to ensure that financially excluded groups aren’t left behind. Financial inclusion working group member GoHenry works to highlight the importance of educating children and teens on how to manage their money and recognise safe services. They believe that all children should acquire the skills and knowledge necessary to manage their finances effectively in adulthood, regardless of their background.

Louise Hill, CEO and founder of GoHenry, stresses the importance of early financial education. Their research in Development Economics shows that children who receive financial education are 46% more likely to start a business, potentially injecting £6.98 billion into the UK economy each year. “It’s a win-win. Additionally, children tell us they want financial literacy lessons in school. What better reason is there than that to make financial education part of the Government’s new curriculum?”

A lack of financial education often coincides with financial struggles, resulting from rising costs and limited disposable income. This means that financially vulnerable people are unable to make informed, long-term financial decisions, even if they possess the necessary knowledge. Government research highlighted that there are 11.5 million people in the UK with less than £100 in savings, which increases their vulnerability to unexpected costs. Raising awareness of the services developed to support financially vulnerable individuals in these circumstances would alleviate these issues and inject funds into the economy.

The Financial Inclusion Working Group hopes these solutions will be considered alongside the issue of cash acceptance in the development of the National Financial Inclusion Strategy, to ensure a holistic and balanced approach to financial inclusion.

The Working Group frequently develops thought leadership campaigns and works to inform regulatory and legislative decisions. You can see the working group’s previous thought leadership on its website.