New transactional technology and exclusion? Scottish Executive financial inclusion conference October 2007

Key issues Potential for technology to help tackle financial exclusion Barriers- demand and supply-side- to using new technologies must both be addressed Segmentation- there is no one-size-fits-all solution

The financially excluded Low-income 2 million unbanked Half those with bank account managing money in cash Heterogeneous group – ages, abilities, life stages Potential

"If you always do what you've always done, you'll always get what you've always got." -- Susan Jeffries Potential

“Someone should inform us about everything…because then you are more aware of what is going on. If not you are just scared and won’t try something new or something modern because you are scared” -- low-user of bank account, female, London, Potential

Market gaps for excluded Savings Cheaper payments – pre-payment meters Remittances Access to wider range of goods and services Potential

Market developments Increased ATM capability – mobile top-ups Internet and phone banking Mobile banking and text updates Pre-paid debit cards Contactless cards – wave and pay, One plus etc Mobile payments – refunds, text debit TV payments TV pay Potential

Consumer needs Money management requirements: –Staying in control – avoiding debt –Keeping track – sticking to budget –Visibility – certainty –Flexibility – what I want, when I need it Potential + Barriers

Challenge for new technologies Being part of the solution to exclusion by: –Being a better option than the competition –Successfully tackling demand and supply side barriers by building on what works –Recognising limits / targeting successfully – no one size fits all solution Barriers

The competition Cash – accessible, affordable, available and appropriate. Offering familiarity, simplicity, known risks and costs. Habit – I know where I am, and what I’m doing Inertia- if it’s not broken, don’t try to fix it Barriers

Demand-side barriers Cash works Fear of debt - catastrophic consequences Fear of fraud / mistakes – unknown risks, uncertain protection Barriers

Demand-side barriers Need for simplicity and clarity on roles and responsibilities “who do I go to when things go wrong?” Tools: No bank account / credit / debit card/ 3G phone / digital exclusion Additional costs of new technologies Skills, confidence and information gaps Barriers

Supply-side barriers Range of barriers applicable to various new technologies Targeting / marketing –middle market? –spender not savers, disposable income not essential spending Design –bank account/ debit / credit card often required –charging structure often promotes big purchase not small payments –Need for additional hardware – e.g. 3G phone –monthly / online statements – difficulties in keeping track –clear lines of redress when things go wrong? Delivery –Complex partnerships – confusion over responsibility –Not universally available through retailers, service providers –Additional costs associated with set-up and assistance services Barriers

Targeting successfully to change behavior adapted from social marketing theory Ready and willing UnableResistant Awareness Education Attitude EducationTackle barriers and educate Enforce, Educ Trial Behavior EducationTackle barriers + incentives Enforcement Repeat Behavior EducationTackle barriers and educate Enforcement Segmenting

To conclude Potential on both supply and demand sides for technology to make a difference Barriers- demand and supply-side- work to do on both sides to harness potential and get inclusive design and delivery Segmentation- there is no one-size-fits-all solution- targeting certain groups of excluded people may be more effective than a blanket approach

Future scenarios 1.No change- cashless society is a myth 2.Higher degree of financial inclusion for some groups, but not others 3. Further financial exclusion as middle market needs are met by technology and cash becomes more expensive

Some questions for discussion Which new technologies are currently being used to promote financial inclusion and by who? What can be done to roll these out? What is the role of local organisations, including the third sector and the public sector in using and promoting new technology? How do we measure and monitor exclusion from new technologies over time given the diversity of the market? Is there adequate consumer protection in place to limit consumer detriment with regards to: the pre-pay market; security risks; and fraud e.g. ID theft. Who should be examining these issues? Which scenario(s) is / are most likely, and what are the implications for financial inclusion? is there an alternative not set out here? What is the role of the National payments plan in promoting financial inclusion? Which other bodies / policy changes could make a difference?

Thank you for your time and contributions to the discussion Nicola O’Reilly Senior Policy Advocate National Consumer Council