A recent report from TotallyMoney has revealed a concerning trend in the United Kingdom, with 23 million adults unable to access mainstream financial products. This represents a significant increase of 3.14 million people over the past two years, encompassing 45% of the adult population in the country.
The survey, which encompassed 200,000 customers between March 2022 and May 2024, identified high inflation as a key factor in limiting disposable incomes. Consequently, 14% of those surveyed expressed feeling overwhelmed by domestic bills and credit commitments, leading to increased borrowing to bridge the financial gap.
The report also highlighted that approximately five-and-a-half million individuals have missed bill payments and are increasingly reliant on credit and buy now, pay later (BNPL) schemes. Furthermore, higher interest rates, stricter regulations, and the struggle to meet financial obligations have led to lenders withdrawing products, restricting lending, and increasing fees and rates.
An alarming finding of the report is that around nine million adults were declined for credit in the last 12 months, categorising them as under-served. TotallyMoney pointed out the inadequacy of credit reports to evolve with societal changes and fully recognize renters, gig workers, freelancers, the self-employed, and those with little or no credit history, who are nonetheless the backbone of most lending decisions.
The Chief Executive Officer of TotallyMoney, Alastair Douglas, expressed deep concern over the growing number of individuals who are unable to access mainstream financial products. Douglas warned that millions of people are being pushed into the hands of unregulated and illegal money lenders, resulting in considerably higher costs and little to no protection. He urged the new government to collaborate with financial service providers and regulators to revamp the industry and create a more inclusive and transparent financial system.
In response to the challenges faced by under-served individuals, Douglas recommended considering the use of free personal finance apps that leverage open banking to connect accounts. This approach offers valuable insights into financial constraints and provides personalized plans to facilitate progress. Additionally, some lenders are now utilising open banking data as an alternative to traditional credit reports, enabling them to offer improved and tailored options to borrowers.
The report underscores the urgent need for systemic changes to ensure fair and transparent access to financial products for all individuals. With the cost of living on the rise and economic activity fluctuating, it is imperative for the industry to adapt to these changes. As the Financial Conduct Authority (FCA) emphasised, a well-functioning credit market is essential for consumer protection and market efficiency, ultimately contributing to the sustainable growth of the UK economy in the long term.
In light of these findings, it is evident that addressing the issue of under-served adults in the UK is not only a moral imperative, but also crucial for the overall health and stability of the economy. Initiatives to improve access to financial products, alongside regulatory reforms, are essential to ensure that all individuals have the opportunity to manage their finances effectively and participate fully in the economy.