Financial services provision
and the prevention of financial exclusion
Overview Paper
March 2007
Contents
Contents ............................................................................................................................. 2
1 What is financial exclusion? ..................................................................................... 3
1.1
Access to what?................................................................................................... 4
1.1.1
Banking exclusion - transactions ................................................................ 4
1.1.2
Savings ........................................................................................................ 5
1.1.3
Credit exclusion .......................................................................................... 6
1.1.4
Insurance ..................................................................................................... 6
1.2
Access or usage? ................................................................................................. 7
1.3
Are there degrees of financial exclusion? ........................................................... 7
1.4
Individual, family or household exclusion? ........................................................ 8
1.5
Conclusion .......................................................................................................... 9
2 Levels of financial exclusion ................................................................................... 11
2.1
Levels of financial exclusion across the EU 15 countries ................................ 12
2.2
Levels of transaction banking exclusion across the EU 15 countries ............... 13
2.2.1
Ireland ....................................................................................................... 14
2.2.2
Italy ........................................................................................................... 14
2.2.3
Spain ......................................................................................................... 15
2.2.4
United Kingdom........................................................................................ 15
2.3
Levels of credit exclusion across the EU 15 countries ..................................... 16
2.4
Savings across the EU 15 countries .................................................................. 17
2.5
Conclusion ........................................................................................................ 18
3 Who is most likely to be financially excluded? ..................................................... 19
3.1
Variations in the types of people who are financially excluded across EU 15
countries ........................................................................................................................ 21
4 The causes and consequences of financial exclusion ............................................ 24
4.1
An overview of the causes of financial exclusion ............................................ 26
4.2
Links between financial exclusion and social exclusion .................................. 30
4.3
Links between financial exclusion and over-indebtedness ............................... 30
4.4
The consequences of financial exclusion .......................................................... 31
4.4.1
Banking ..................................................................................................... 31
4.4.2
Credit......................................................................................................... 32
4.4.3
Savings and asset building ........................................................................ 32
5 Existing policy approaches to financial exclusion ................................................ 33
5.1
Market responses .............................................................................................. 33
5.1.1
Niche providers ......................................................................................... 33
5.1.2
Development of new products and services by mainstream providers ..... 34
5.2
Voluntary charters and codes of practice .......................................................... 35
5.3
Government intervention .................................................................................. 37
5.3.1
Government as facilitator .......................................................................... 37
5.3.2 Government as legislator ................................................................................. 38
5.4
An overview of responses across EU countries ................................................ 39
5.5
Summary and next steps ................................................................................... 39
Annex I – Types of financial exclusion ........................................................................ 47
Annex II - A synthesis of the main experiences of responses ...................................... 48
2
1 What is financial exclusion?
The term financial exclusion was first coined in 1993 by geographers who were
concerned about limited physical access to banking services as a result of bank branch
closures (Leyshon and Thrift, 1993). Throughout the 1990s there was also a growing
body of research relating to difficulties faced by some sections of societies in gaining
access to modern payment instruments and other banking services, to consumer credit
and to insurance. There was also concern about some people lacking savings of any kind.
It was in 1999, that the term financial exclusion seems first to have been used in a
broader sense to refer to people who have constrained access to mainstream financial
services (Kempson and Whyley, 1999).
Since then, a number of commentators have added their views of how financial exclusion
should be defined. These include both academics (for example, Anderloni, 2003;
Anderloni and Carluccio, 2006; Carbo et al, 2004; Devlin, 2005; Gloukoviezoff, 2004;
Kempson et al, 2000; Sinclair, 2001); and policy makers (Treasury Committee, 2006a,
2006b; HM Treasury, 2004).
The general consensus is that it refers to people who have difficulty accessing appropriate
financial services and products in the mainstream financial services market. Two aspects
of this definition are important: First the reference to appropriate products and secondly
to the mainstream financial services market – as much of the exclusion appears to arise
from a failure of the mainstream commercial providers to supply a range of products and
services that are appropriate to the needs of all sections of society.
There is also a widespread recognition that financial exclusion forms part of a much
wider social exclusion, faced by some groups who lack access to quality essential
services such as jobs, housing, education or health care.
Financial exclusion is, however, a complex concept and the following key issues need to
be considered:




Exclusion from which financial services and institutions?
Do we need to draw a distinction between access to financial services and usage
of them?
Are there degrees of financial exclusion and, if so, how to express these?
For whom do we measure access: the individual, the family or the household?
We address these issues in the sections below.
3
1.1
Access to what?
One of the key considerations is whether we are concerned with access to services or to
specific types of institution. This is a relevant consideration to all areas of financial
services and generally the focus to date has been on a combination of the two – in other
words access to appropriate services from mainstream providers. This debate is
especially important in the area of unsecured consumer credit and in countries where
there is a growth in sub-prime (or non-status) lending at a much higher cost and often
inferior terms and conditions.
The second key consideration is which services are to be considered essential and
therefore ones to which all in society should have access. The World Bank (1995)
identifies four key areas: transaction banking; savings; credit and insurance (see appendix
1 for definitions, additional information and key issues involved).
1.1.1 Banking exclusion - transactions
In parallel with these more general debates about financial exclusion, there has been a
parallel discussion about the extent of engagement with banking services in particular.
This has arisen for a number of reasons. First, access to banking – and especially to
transaction banking services - is seen as a universal need in most developed and,
increasingly, cashless societies. Secondly, if people have any products at all, it is
generally a bank account or its equivalent. Consequently access to a bank account is seen
as an entry point for use of financial services more generally. Thirdly, without a
transaction bank account, it is very difficult indeed to access other financial services
offered by mainstream providers such as consumer credit, mortgages, or insurance as
payments for these normally require electronic payment from a bank account. Finally, in
societies that are moving away from cash as a means of payment, it becomes more
difficult and expensive for people who can only pay in cash.
For these reasons, there has been concern about the extent to which people have
relationships with banking institutions, which gives them a means of:
 receiving regular electronic payment of funds such as wages, pensions or social
assistance
 converting cheques or vouchers into cash
 storing money safely until it needs to be withdrawn
 paying for goods and services other than in cash
 paying bills electronically
 making remittances
While the first three of these can be met through a simple deposit account of some kind,
the others are only available to someone with access to transaction banking services.
This has given rise to a number of categorisations of the extent to which people are
engaged with banking. These include the ‘unbanked’ who are generally taken to be
people with no banking relationship at all, the ‘under’ or ‘marginally’ banked who are
4
people with a deposit account that has no electronic payment facilities, no payment card
or cheque book an d no means of remitting money. People who do have these facilities
but make little or no use of them are also sometimes considered to be ‘under’ or
‘marginally’ banked. As the term ‘under-banked’ implies a value judgement about the
level of banking that is appropriate, we believe it is more appropriate to refer to people
as ‘marginally banked’. People are considered ‘fully banked’ if they have access to a
wide range of transaction banking services that are appropriate to their needs and socioeconomic status (Anderloni and Carluccio, 2006; BMRB, 2006; Barr, 2004; Corr, 2006;
Kempson, 2006).
Finally, it is important to note that because access to banking services is so fundamental,
it is sometimes used by policy-makers and others as a proxy measure for financial
exclusion more generally.
1.1.2 Savings
The situation with savings is quite different from other financial services. Here there is
no discussion of people who are ‘savings excluded’ – largely because gaining access to a
simple deposit account does not pose many problems, on the whole. Even so, as we
discuss below, some people cannot open accounts because they lack appropriate
identification documents and there are problems of self exclusion, not just through lack of
money to save but also because of psychological barriers to using a financial institution
and a lack of interest in opening a savings account that does not also offer an overdraft
facility (see section 4.1 for a fuller discussion of the causes of financial exclusion).
Turning to longer-term savings, the ageing population of Europe means that there is a
growing need for individuals to make their own financial provision for their retirement.
In some countries, with relatively generous state pension provision, this is little more than
a debate. In others such as the UK, Italy and France, private pensions are already a
necessity if people are to have an adequate standard of living in their old age. Although
there is widespread concern about the low levels of private pension-holding among
people on low incomes, women and self-employed people (see for example Turner
commission in the UK, Brambilla commission in Italy, Commissariat General au Plan in
France), pension provision is seldom considered as part of the wider financial exclusion
debate. The pensions debate mainly relates to the reform of welfare systems in the light
of the ageing populations in industrialised societies. In particular there is a concern to
achieve a balance between the need to improve the solvency of public welfare system
through longer active working lives and higher contributions, and the need to provide
incentives for people to pay money into private pension schemes. This is part of a much
wider debate and is not covered in this study.
In some countries – Spain and France, for example – there is also concern to make
savings accounts available to facilitate house purchase by people on low incomes.
5
1.1.3 Credit exclusion
Access to credit is important as it provides a means to smooth consumption, can protect
against income shocks and, in some cases, allows individuals to make productive
investments which can lead to higher future income. In addition to loans, credit facilities
such as overdrafts and credit cards are of increasing importance in most developed
economies1.
The term ‘credit excluded’ is generally used to refer to people who cannot gain access to
unsecured credit from mainstream (also known as prime or status) lenders. This can arise
from their personal and economic circumstances, or a history of bad debt (Nieri, 2006,
World Bank, 2005). This definition is rather more difficult to apply in countries such as
the UK, where there is no interest rate ceiling and a widespread and rapidly developing
sub-prime credit market which caters for people who have impaired credit histories or
who are considered a high risk for other reasons. In such circumstances the debate
focuses more on access to affordable credit, with people being considered credit excluded
if they have to pay charges that are considerably in excess of those in the mainstream
credit market (Kempson et al, 2000; Kempson et al, 2003).
It should be noted that credit exclusion is much more difficult to quantify than banking
exclusion, since a much higher proportion of people choose not to use credit even though
they could gain access to it. This applies particularly to revolving credit facilities
(overdrafts and credit cards) which people hold and choose not to use. In addition a high
proportion of credit card balances are settled in full each month and are therefore not
used for extended credit. However, by assessing the facilities people have, regardless of
whether they are used or not, we can get an approximation of levels of access.
1.1.4 Insurance
The concept of insurance exclusion is quite new and unknown in most countries – the
exception being the UK, where early research has looked at exclusion from home
contents insurance (Whyley et al, 1995; Kempson, 1999). There is also current policy
interest in this area from both the UK Financial Inclusion Taskforce and the Treasury
Committee Inquiry into Financial Inclusion.
However the “financialisation of social relations in modern societies” (Gloukoviezoff,
2006) and the increasing need for individuals to assume responsibility for managing risks
of various kinds leads to an increasing need for insurance products. In some cases, such
as the use of motor vehicles, insurance is compulsory across all European countries,
while insuring the contents of ones home is the responsibility of the individual. Similarly,
life insurance is an individual responsibility. And when renting a home in France, it is
1
We have, however, excluded access to mortgages from the terms of reference of this study as it raises a
much wider set of issues about access to home ownership. Finance for business purposes has also been
excluded as this has been studied extensively in other European Commission studies (see for example,
Siewertsen et al, 2005)
6
also very common for tenants to be required to take out insurance. Moreover, it is
generally cheaper to buy insurance direct, but this is not available to people who lack
access to bank payment card (either debit or credit card) and to the Internet.
There is, however no clear definition of which types of insurance are considered essential
so that anyone who lacks them might be considered financially excluded. The UK
Financial Inclusion Taskforce is beginning to address this issue and the Association of
British Insurers has commissioned (as yet unpublished) research to inform their
discussions.
It has, therefore, been decided not to include insurance within this project although the
debates in the UK should be monitored with a view to exploring insurance exclusion
across Europe at a later date.
1.2
Access or usage?
There is an important distinction to be drawn between access and usage. So, in the
context of banking we need to consider how to categorise people who do have transaction
banking facilities with an account but choose not to use them. As we note above, such
people are often considered to be marginally banked (Anderloni and Carluccio, 2006;
BMRB, 2006; Barr, 2004; Corr, 2006; Kempson, 2006).
Then there is the issue of people who could gain access to specific services but choose
not to do so. This applies especially to consumer credit and insurance, but is also a
feature of access to insurance and banking too. Here an important distinction is often
made between those who choose freely not to use a particular service (such as people
who have a fundamental objection to using credit) and those who are deterred from doing
so because features of the products or services make them inappropriate in certain
circumstances or the cost puts them beyond the reach of some people. We return to this
point in section 4.1.
1.3
Are there degrees of financial exclusion?
Here there are two aspects to be considered. First, as we discussed in section 1.2, people
may have varying levels of engagement with banking services. So they may have a
deposit account but not a transaction one. They may have access to some, but not all the
transaction banking facilities that would be appropriate to their circumstances. It is for
this reason, that the terms unbanked, marginally (or under-) banked and fully-banked
have been coined (Anderloni and Carluccio, 2006; BMRB, 2006; Barr, 2004; Corr, 2006;
Kempson, 2006).
There is, however, another important dimension to this debate which is the extent to
which people have access to transaction banking services but not through mainstream
providers – in this case the banks and other similar organisations. In some countries
7
there are a range of alternative providers or fringe banks that cater to the needs of people
without a transaction bank account. These include organisations specialising in offering
cheque cashing, bill-payment or remittance services. Generally, people who use these are
considered unbanked if they lack a transaction bank account or marginally banked if they
have one but do not use it (Barr, 2004; Caskey, 1994; Kempson and Whyley, 1999).
Likewise some people may be able to get a cash loan from a high cost sub-prime lender
but not an overdraft or a credit card in the prime credit market, while others might be
denied all forms of credit, even in the sub-prime market. Both are usually considered
credit excluded but the term ‘completely credit excluded’ has only been used to describe
the second of these two groups (Kempson and Collard, 2005).
The World Bank (see Figure 1) distinguishes between those who are ‘formally served’
that is those who have access to financial services from a mainstream provider and those
who are ‘financially served’ who also include people who use informal providers. In
contrast to the other work described above, the term ‘financially excluded’ is only used to
describe those who have no access at all (World Bank, 2005).
Figure 1
Financially served
Formally included
Financially
Excluded
Bank
Other formal
providers
Informal
providers
No
providers
Source: Concept and graphic representation from World Bank (2005)
Secondly, when considering broader financial exclusion there are clearly degrees of
exclusion. Therefore, research in the UK has measured not just the number of people
who lack any financial products at all, but also the number of products held by those with
any, categorising people into low, medium-low, average, medium-high and high levels of
financial inclusion (Kempson and Whyley, 1999).
1.4
Individual, family or household exclusion?
Finally, there is a debate about whether financial exclusion (and banking and credit
exclusion) should be assessed at the individual or household/family level (Anderloni and
8
Caluccio, 2006; BMRB, 2006; Gluokoviezoff, 2004; Kempson and Whyley, 1999). Each
has its limitations.
If the assessment is made at the individual level, people appear to be financially excluded
even though their partner may make extensive use of financial services and they would
easily get them in their own right. This applies particularly to married women who are
not in paid employment – who would not generally be considered excluded. In addition,
a decision has to be made about the age range of individuals to be covered. In most
countries there is a legal age limit below which credit facilities cannot be granted. As a
consequence many studies have looked at adults aged 18 or over, although others cover
people from the age of 16 or 15.
On the other hand, assessing access at the family level (that is the head of household and
their partner if they have one) we have a clearer idea of the proportion of the population
with no ready access, even through a partner, but underestimate the proportion of people
at risk of being financially excluded if they experienced the break-up of their family. It
also underestimates the number of people who are affected. For this reason the UK
Government, in its monitoring, estimates the number of adults living in family units
without access to banking (Financial Inclusion Taskforce, 2006a, 2006b).
Assessing access at the household level (that is considering all adults living in a
household) compounds these problems still further as there is much less stability of
households than of family units. Moreover, household level analysis does not provide
estimates of the financial exclusion faced by young adults still living at home.
1.5
Conclusion
Financial exclusion is a complex concept and consequently one that can be complicated
to measure. We have, however, set out some tentative conclusions below.
In our opinion people need, as a basic minimum:
 an account into which their income can be paid (either a transaction bank account
or a deposit account of some kind);
 a means of making payments, including bills and remittances (that is a transaction
bank account);
 a way of storing money for either the short or long-term (a savings account) and
 a means of dealing with temporary cash shortages or meeting unexpected
expenses (affordable unsecured credit)
 (there is also a possible case for home contents insurance).
Given the growth in high-cost fringe banking services that target people who do not have
access to mainstream financial services, it is important to consider the interplay between
services and providers when assessing the access someone has.
9
While access is the first step towards financial inclusion it is important to have
information about people’s levels of usage of financial services too. As we shall see
later, many people are deterred from using financial services by many of the same factors
that may deny others access.
It is important to acknowledge that financial exclusion is not an absolute concept
(excluded or not) but a relative one, rather like poverty, with degrees of exclusion.
People vary in their extent of engagement with specific services (eg transaction banking
where we have both the unbanked and the marginally banked). And they also vary in the
number of types of financial products to which they can gain access. It may be helpful in
this context to use the term financially excluded for those who lack all products and
marginally included for those who have limited access – just as poverty is often described
either in terms of being in the lowest income decile or quintile or, alternatively, of being
below a threshold, such as 60 per cent of median income.
Finally, in measuring levels of financial exclusion, the sampling for surveys should be
constructed so that the data can be analysed at both the individual and the family level. It
is also important to be explicit about the lowest age covered among the individuals.
When re-analysing existing data it is not always possible to ensure that all of these factors
are taken into consideration. In this case it is important to be very clear about exactly
what is being measured and, importantly, what is not.
10
2 Levels of financial exclusion
The main source that has been used to assess levels of financial exclusion in Europe is the
Eurobarometer Survey 60.2, undertaken at the end of 2003 (Anderloni and Carluccio,
2006; Nieri, 2006; Corr, 2006). To date, however, use of the Eurobarometer data has
been restricted to looking at access to specific products only (banking: Anderloni and
Carluccio, 2006; Corr, 2006; credit: Nieri, 2006; life insurance: Corr, 2006). We have,
therefore, re-analysed the data to take this analysis further.
First, it is important to describe the Eurobarometer data in more detail. It is a survey of
people aged 15 or over and the 2003 data covers only those living in the EU 15 countries.
In our analysis, however, we have restricted the analysis to people aged over 182. It asks
about the holding of a range of financial products, including transaction accounts (with a
cheque book and/or a payment card facility). It also covers deposit accounts (which pays
interest but has no payment card or chequebook) and a range of other savings products,
including life assurance policies, stocks/shares, collective investments (i.e. unit trusts)
and bonds. The forms of credit covered include overdrafts, credit and charge cards, loans
for car purchase and other purposes.
This showed that, at the end of 2003, eight per cent of all adults aged 18 and over living
in the EU 15 countries had no bank account at all – people we have called ‘unbanked’. A
further eight per cent had only a deposit account with no payment card or cheque book –
these we have called ‘marginally banked’. In other words 16 per cent had no access to
transaction banking services.
The same survey also asked about holdings of four types of unsecured credit: overdraft
facilities, credit card facilities, loans to buy a car and loans to buy something else.
Taking these four forms of credit together showed that 37 per cent of EU 15 adults had
none of them at the time they were interviewed while 40 per cent had no immediate
access to credit in the form of an overdraft or credit card facility.
Thirdly the Eurobarometer survey asked about ownership of a range of savings products2.
This showed that, at the end of 2003, 30 per cent of EU 15 adults had none of these forms
of saving.
On the whole, people who lacked a bank account of any kind were very likely not to have
either a savings account (88 per cent) or unsecured credit (84 per cent) (Table 1). Putting
this together we find that six per cent of all adults in the EU 15 had none of these three
types of financial product and might, consequently, be considered ‘financially excluded’
2
As this is the legal age of access to some types of product (including a transaction bank account with an
overdraft and unsecured credit), this seems to be the most appropriate lower age to use.
11
Table 1
Percentage of the EU 15 Population excluded from credit and savings by
banking status
No credit
All
No transaction bank account
Deposit account only4
No bank account at all
No savings
37
81
73 3
88
30
42
0
84
All
16
8
8
Cell percentages3
Weighted base
15,526
2,560
1,266
1,293
Source: Eurobarometer 60.2
Base: all adults aged 18 or over
2.1
Levels of financial exclusion across the EU 15 countries
Levels of financial exclusion varied widely even across the EU 15 countries, ranging
from 1 per cent or less in Denmark, Belgium, Luxembourg, the Netherlands and Sweden,
to 10 per cent or more in Italy (15 per cent), Portugal (17 per cent) and Greece (24 per
cent) (Table 2, column 5). Indeed, as we shall see in subsequent sections, these countries
feature among those with the highest proportions of people excluded from each of the
three types of financial services we have studied in detail: banking, unsecured credit and
savings. Moreover, this finding is consistent with earlier research which showed a
correlation between banking exclusion and the Gini coefficient for a country (Kempson,
2006).
In the UK two national studies have sought to measure levels of overall financial
exclusion, using data from the annual Family Resources Survey which collects
information on the ownership of bank accounts of various kinds, as well as other savings
products5 and various forms of insurance. Analysis of this data identified seven per cent
of households in Britain lacking any mainstream financial products at all (very similar to
the five per cent identified using the Eurobarometer data). A further 19 per cent were on
the margins of financial services, having only one or two products (usually these were a
deposit account or a transaction banking account) (Kempson and Whyley, 1999;
Meadows, 2000). Although the data are publicly available, this analysis has not been
repeated for more recent years.
3
All figures are expressed as cell percentages, e.g. 76 per cent of people with a deposit account only have
no form of credit
4
Some of the people listed as having a current account, actually stated that they had either a deposit or no
bank account, but also said they had access to a chequebook and an overdraft facility. It was found that
these people shared similar characteristics to people who stated they held current accounts, so for this
reason it was felt that they were likely to be people with current accounts, but had misunderstood the
question. Hence, we recoded them as holding a current account for the purposes of this research
5
Savings products included a deposit account which pays interest but has no payment card or chequebook,
life assurance policy, stocks/shares, collective investments (i.e. unit trusts) and bonds
12
Table 2
Levels of financial exclusion in individual EU 15 countries
Cell percentages6
No transaction
bank account
No credit
No savings
Financially
excluded
Un-weighted
base
Weighted
base
All
16
37
30
6
15,453
15,526
Belgium
Denmark
Germany
Greece
Italy
Spain
France
Ireland
UK
Luxembourg
Netherlands
Portugal
Finland
Sweden
Austria
4
9
6
76
26
41
3
39
14
6
1
19
17
16
17
33
14
42
72
52
43
13
41
27
17
20
69
40
28
33
13
15
21
41
50
25
39
21
22
28
28
62
34
7
11
1
1
2
24
15
5
1
8
5
0
0
17
2
1
2
988
970
2,000
964
955
959
957
949
1,294
574
978
947
960
969
989
421
214
3,517
435
2,408
1,660
2,327
145
2,424
18
644
413
206
356
339
Source: Eurobarometer 60.2
Base: All adults aged 18 or over
In Italy the biennial panel survey on Household Income and Wealth collects data on
deposit accounts (with a bank or the Post Office), other kind of financial assets (savings),
life insurances and private supplementary pensions plans.
In Spain the Survey on Household finances (EFF) collects data on bank accounts
(including transaction accounts that offer payment facilities, deposit accounts without
payment facilities and house-purchase saving accounts), other savings products,
including pension schemes and unit-linked or mixed life insurance.
2.2
Levels of transaction banking exclusion across the EU 15 countries
Again the Eurobarometer analysis shows wide variation in exclusion from transaction
banking services across the EU 15 countries – ranging from one per cent of individuals in
the Netherlands to 76 per cent in Greece (Table 2, column 2). Other countries with high
proportions of individuals without a transaction account are Spain (41 per cent), Ireland
(39 per cent), Italy (26 per cent) and Portugal (19 per cent).
6
All figures are expressed as cell percentages, e.g. six per cent of people in Belgium do not have a
transaction bank account
13
It should be noted, however, that in Greece, Spain and Ireland, a high proportion of
individuals had a deposit account even though they lacked a transaction account, so the
proportion lacking an account of any kind was a good deal lower. Even so, the
proportion of individuals who were completely unbanked ranged from well under one per
cent in the Netherlands to 34 per cent in Greece. Again, the proportions were relatively
high in Ireland (17 per cent), Portugal (17 per cent) and Italy (18 per cent).
In addition to the Eurobarometer surveys, national surveys have also been undertaken in a
number of member states. These are summarised below and, generally speaking, they
indicate levels of banking exclusion that are somewhat lower than is found using the
Eurobarometer data. This may well have arisen because of the problems of defining the
different types of account in a way that can be applied across Europe. For example, the
people surveyed may have under-reported accounts held with the post office, savings
banks or credit unions.
2.2.1 Ireland
A recent report from the Combat Poverty Agency provides additional information on the
extent of banking exclusion in Ireland (Combat Poverty Agency, 2006). This shows how
measures can vary widely depending on the definitions used.
Drawing on data from the 1999/2000 Irish Household Budget Survey, they found that 33
per cent of households lacked a transaction bank account. While market research
undertaken for the Irish Bankers Federation in 2003 showed that 28 per cent of
individuals lacked such an account (Corr, 2006). These figures are somewhat lower than
those from our re-analysis of the Eurobarometer data, which identifies 39 per cent of Irish
individuals as lacking a transaction account in 2003. This is almost certainly because
credit union usage is high in Ireland and may not have been consistently identified by the
Eurobarometer survey.
Taking a narrower definition of the unbanked, the Financial Regulator Consumer Survey,
in 2003, found that 10 per cent of individuals aged 15 or over lacked a bank account of
any kind (Corr, 2006) – very similar to the level (11 per cent) in a survey for the Irish
Payment Services Organisation in 2006 (Marketing Partners Ireland Ltd, 2006). Again
these are a good deal lower than the 17 per cent of individuals who were found to lack an
account of any kind in the Eurobarometer survey – again due to credit union usage.
2.2.2 Italy
In Italy, Banca d’Italia has commissioned a series of surveys to look at the extent of
access to the Italian banking system (Banca d’Italia 2002, 2004, and 2006). The most
recent survey, in 2005, found that 14 per cent of breadwinners in Italy lacked a bank
account of any kind (Banca d’Italia 2006). Once again this is slightly lower than the 18
14
per cent of individuals lacking a bank account in the Eurobarometer data. It does,
however, need to be remembered that the population being surveyed differs in the two
studies.
2.2.3 Spain
Although the Eurobarometer survey shows that 41 per cent of individuals in Spain lacked
a transaction account, 10 per cent lacked an account of any kind. Both figures are
considerably higher than those identified in a panel survey commissioned by the Banco
de Espana which found that 17 per cent of households lacked an account with payment
facilities, while only two per cent had no account at all (Banco de Espana, 2005). As in
Italy, it is important to remember that the population being surveyed in the two studies
differs.
2.2.4 United Kingdom
In the UK, analysis of the Family Resources Survey data shows that 12 per cent of
households and 14 per cent of individuals lacked a current account in the 2002/03 survey.
In this case the figures for individuals were similar to those found in the Eurobarometer
data (15 per cent).
Since then the Government’s Financial Inclusion Taskforce has commissioned a series of
Omnibus surveys between May 2005 and June 2006 to monitor progress towards the goal
(shared by Government and the banking sector) to halve the numbers of individuals
living in households without a transaction bank account7 and the numbers with no bank
account at all. Aggregated data from these surveys show that in 2005/06 the number of
families without a current account had fallen to 2.21 million (compared with 3 million in
2002/03); while the number with no bank account of any kind fell to 1.5 million (from
2.9 million in 2002/03) (Financial Inclusion Taskforce, 2006a. 2006b). There were falls
of a similar size in the numbers of individuals living in families either without a current
account or with no account of any kind. Please note, we will be able to insert
percentages from the 2005/06 FRS data when it is available in a month or so.
The Financial Inclusion Taskforce has also commissioned a survey that was designed to
explore the extent and nature of banking more fully. This included levels of use of
accounts by account-holders and also the overlap between banking exclusion and the use
of various forms of unsecured credit (BMRB, 2006). This found that eight per cent of
individuals lacked a transaction bank account in their own name, while five per cent of
individuals did not have such an account themselves nor did they live with a partner who
7
From 2003, basic bank accounts (simple transaction accounts that cannot become overdrawn) became
more common, and the Post Office has offered a stored value card (The Post Office Card Account). The
way that information about these was collected on the Family Resources Survey in 2003/03 and 2004/05
means that the data cannot be used to measure levels of account-holding accurately.
15
had one. They also identified that seven per cent of households either lacked a transaction
account or had one but did not use the transaction banking facilities.
2.3
Levels of credit exclusion across the EU 15 countries
Using the Eurobarometer data it is possible to compute two variables to measure the level
of exclusion from unsecured credit. The first is the proportion of people with no credit in
the form of an overdraft, credit card or loan; the second is a narrower definition - of
access to mainstream revolving credit facilities (overdrafts and credit cards). Both
measures, however, tend to provide an over-estimate as they will include people who are
opposed to borrowing and so decline such facilities8. Importantly, the extent of this will
vary from country to country, depending on the prevailing attitude towards borrowing. It
should also be noted that there are three quite distinct types of credit card in Europe, and
also that the Eurobarometer survey puts charge cards together with credit cards even
though they do not offer extended credit. Secondly, the Eurobarometer survey excludes
some forms of credit that are quite prevalent in some countries – including goods bought
on credit through mail order catalogues and, in the UK and Ireland, a form of credit
known as hire purchase. Finally, experience of designing surveys in the UK has
identified that a significant proportion of consumers confuse debit cards with credit cards.
Despite these concerns about the Eurobarometer data, it does offer at least some insight
into levels of access to credit across the EU 15 countries. These should, however, be kept
in mind when interpreting the findings of the analysis.
As we reported above, across the EU 15 countries almost four in ten (37 per cent) of
adults aged 18 or over did not have any credit facilities in 2003, and 40 per cent had
neither an overdraft nor a credit card. The proportion of people with no form of credit
was lowest in France (13 per cent), Denmark (14 per cent), Luxembourg (17 per cent)
and. The highest proportions were found in Greece (72 per cent) and Portugal (69 per
cent), followed by Italy (52 per cent), Spain (43 per cent) and Germany (42 per cent).
On the more limited definition, four in ten (40 per cent) of adults in EU 15 countries had
neither an overdraft nor a credit card facility and the variations across the 15 countries
showed the same pattern as was reported above. So access was least restricted in France
(14 per cent), Denmark (18 per cent) and Luxembourg (18 per cent), but most limited in
Greece (76 per cent) and Portugal (75 per cent).
In Great Britain, a survey undertaken for the Government found that, in 2002, 26 per cent
of households had no credit facilities9 (Kempson, 2002). This is consistent with the
Eurobarometer data which shows that 30 per cent of British adults had no credit facilities.
However, other UK research, using a longitudinal data set where the same people are reinterviewed each year, has shown that snapshot surveys lead to over-estimates of the
8
Research in the UK, for example, showed that eight per cent of households did not have any form of
credit because they were opposed to borrowing.
9
This includes credit cards and overdrafts on which no money was owed and is, therefore, similar to the
Eurobarometer definition except that it does include people who have access to credit in the sub-prime
market only.
16
numbers of people who are not using credit. Although 64 per cent of adults did not owe
money on unsecured credit in 2000 a much smaller proportion of people (45 per cent of
all adults) had not owed any money in either 1995 or 2000 (Kempson et al, 2004).
Where more direct measures of credit exclusion have been attempted at a national level,
they show that the figures from the Eurobarometer do seem to greatly over-state the
proportion of people excluded from the mainstream credit market – for the various
reasons spelt out above. The UK National Consumer Council has, for example, estimated
that 7.8 million people (17.5 per cent of the adult population aged over 18) had applied
for credit and been refused several times and could therefore be considered excluded
from mainstream credit (Treasury Select Committee 2006a). This is considerably lower
than the 27 per cent of the UK population that the Eurobarometer data indicates as having
no credit facilities
A survey carried out in 2005 in France, Spain and Italy has attempted to understand the
behaviour of people on low incomes (unemployed or employed on a temporary basis)
with regard to credit access (Nieri, 2006). Although the aim of the research was not to
measure the level of credit exclusion but to analyse qualitative aspects, it showed that a
large proportion of people on low incomes did have access to credit, although not
necessarily from a bank. Most of them, however, paid no attention to the difference in
costs and terms between banks and other financial institutions and were not able to
evaluate how high the costs were. About half of the people interviewed had never
approached a bank or a credit institution for a loan: this percentage was higher still for
migrants (62 per cent of the sample), especially those living in France. However, only
16 per cent of respondents said that they had applications for loans rejected – a level that
is remarkably similar to that found in the UK. Adding to these the people who said they
did not apply because they expected to be rejected (21 per cent) gives a figure of 37 per
cent of people who needed credit but were excluded or chose to self-exclude (Nieri,
2006). The Eurobarometer data, which looks at the whole population, not just those on
low incomes, indicates that levels of credit exclusion were 13 per cent in France; 43 per
cent in Spain and 52 per cent in Italy.
In other words, by using the Eurobarometer data to assess the numbers of people who do
not have any credit facilities we are almost certainly adopting a wide definition of credit
exclusion – including those who self-exclude through choice as well as those with
constrained access.
2.4
Savings across the EU 15 countries
As we saw earlier, around a third (30 per cent) of adults living in one of the EU 15
countries had no savings account at the time of the 2003 Eurobarometer survey. Once
again there were wide variations across individual countries. Sweden was the country
with the highest incidence of savings account-holding – only seven per cent of adults
lacked a savings account. At the other extreme, countries where a large proportion of the
population did not have a savings account included Portugal (62 per cent), Italy (50 per
cent), Greece (41 per cent) and France (39 per cent).
17
Analysis of the Family Resources Survey in the UK suggests that just over a quarter
(27%) of households (Department for Work and Pensions, 2006) and over a third (37 per
cent) of individuals (Rowlingson et al, 1999) lacked any savings. This last figure is
rather more than the proportion indicated by the Eurobarometer survey (23 per cent).
Analysis of the Household Income and Wealth survey in Italy shows that 14 per cent of
households lack any savings, i.e. they have no assets at all, while 64 per cent only have
an account that is used for transaction purposes, and not for savings.
2.5
Conclusion
Only a minority of the adult population living in the EU 15 countries is affected by
financial exclusion – two in ten lack access to transaction banking facilities; around three
in ten have no savings and four in ten have no credit facilities, although rather fewer (less
than one in ten) report having been refused credit. The proportion of people lacking
access to any of these three forms of financial service is lower still – at around six per
cent of the adult population aged 18 or over.
There are, however, considerable variations in levels of financial exclusion even across
the EU 15 countries. In general, levels are lowest in the countries such as Netherlands,
Denmark, Sweden and Luxembourg where the standard of living is universally high.
They are highest in the Southern European countries such as Greece, Spain, Italy and
Portugal.
It should be noted that there is very little data on levels of financial exclusion across
Europe. Most reports have relied to some degree on published data from the
Eurobarometer survey, which in 2003 covered only the EU 15 countries. The small
number of countries where any separate measurement has been attempted have used
either national household budget surveys or ad hoc surveys to do so. Comparing the
results of these with those obtained from our own analysis of the Eurobarometer data
reveals some discrepancies, particularly in relation to transaction banking in countries
like Spain, Portugal and Italy where savings banks or the post office play an important
role. The same is true to some degree in Ireland where credit unions are prevalent. In
any future surveys covering all or a number of EU countries, it will be important to
ensure that the wording of questions for banking is tested to ensure that it reflects local
service provision.
18
3 Who is most likely to be financially excluded?
Previous research in the UK has shown that complete financial exclusion among
households has very strong links to low income (Kempson and Whyley, 1999; Meadows,
2000). It was, therefore, most common among people who were not in paid work and in
households where there was no wage earner. Consequently unemployed people, lone
parents and people unable to work through disability had above average levels of
exclusion. There was also a link with age, with the youngest and oldest people being
most likely to be excluded, and a link with educational attainment so that the more
education someone had received the less likely they were to be excluded (Kempson and
Whyley, 1999; Meadows, 2000). Financial exclusion was also very prevalent among
ethnic minorities and migrants (Atkinson, 2006; Kempson and Whyley, 1999; Meadows,
2000).
In addition to these personal characteristics, statistical analysis has also shown that living
in a neighbourhood that had high levels of deprivation increased the likelihood of being
financially excluded still further (Kempson and Whyley, 1999) and so too did having
friends and family who were financially excluded (Meadows, 2000).
Other research has looked largely at the types of people who lack access to transaction
banking (Anderloni, 2003; Anderloni and Carluccio, 2006; BMRB, 2006; Barr, 2004;
Bayot, 2005; Corr, 2006; Devlin, 2005; Gloukoviezoff, 2005; Kempson, 2006; Kempson
and Whyley, 1998; IFF, 2000; Test Achats, 2001). On the whole, the findings mirror
those in the studies of financial exclusion just described. One study has explored gender
differences in transaction account-holding and found that ethnicity, having children,
personal income and economic activity status all had a greater effect on women’s
propensity to be financially excluded than they did on men. This is consistent with
qualitative research showing that some married women give up having an account in their
own name when they give up work to have children (Kempson and Whyley, 1998).
Analysis of the Eurobarometer data is consistent with this earlier research (Table 3). This
shows that women were almost twice as likely to be completely financially excluded as
men and had a higher incidence of exclusion from all kinds of financial services.
Young people (aged 18-25) included the largest proportion who were financially
excluded generally and a very high level of exclusion from all forms of financial services.
Overall financial exclusion was high among the oldest people (aged 65 and over) as well;
they also had high levels of banking and credit exclusion, but were more likely than
average to have savings.
19
Table 3
Types of people likely to be financially excluded in the EU 15 countries
Cell percentages
No transaction
bank account
All
Family type
Single parent
Couple with children
Single no children
Couple no children
Respondent work status
Self employed
Employed
Looking after home
Student
Unemployed
Retired/unable to work
Head of household work status
Self employed
Employed
Looking after home
Student
Unemployed
Retired/unable to work
Age left education
Up to 15
16-19
20 +
Still studying
Gender
Male
Female
Age
18-25
26-44
45-64
65 +
Geographical area
Rural area or village
Small or middle sized town
Large town
Income quartile
Lowest
Second lowest
Second highest
Highest
No credit
No savings
Financially
excluded
Weighted
base
17
37
30
6
15,526
22
11
20
15
40
22
46
36
43
25
38
24
9
3
7
5
848
3,619
5,362
5,545
11
10
27
30
24
20
22
23
48
56
51
52
23
26
38
51
45
27
3
2
11
15
10
6
1,270
6,644
1,804
997
935
3,874
16
13
26
8
22
22
31
27
58
35
51
53
28
29
40
40
44
30
6
4
10
2
9
7
1,810
7,995
453
328
601
4,339
28
12
8
28
55
30
21
55
33
28
23
48
9
4
2
14
4,245
6,625
3,554
1,102
15
18
33
40
28
32
4
7
7,491
8,033
24
13
13
23
47
26
32
55
47
29
25
28
11
4
4
7
2,139
5,503
4,710
3,173
18
16
16
39
37
34
29
30
31
6
6
5
4,764
6,278
4,375
21
14
10
9
50
37
30
18
41
30
24
16
8
4
3
2
2,827
2,590
2,106
2,556
Source: Eurobarometer 60.2
20
Lone parents and single people (who tended to be either quite young or quite old)
included a greater proportion of people who were living with a partner, whether they had
children or not.
There was a strong link with level of education received and also with income. So the
less well-educated people were and the lower their household income, the more likely
they were to be excluded from all forms of financial services. Not surprisingly then,
unemployed people, and people looking after the home full-time (including both lone
parents and wives) had high levels of financial exclusion and were very likely to be
excluded from transaction banking credit and savings. So, too were people living in
households where the head of household was either unemployed or looking after a family
full-time. Interestingly, people who described themselves as retired or unable to work
through disability10 had high levels of apparent credit exclusion, and slightly higher than
average levels of exclusion from transaction banking. They did, however, have average
levels of engagement with savings products and also of exclusion from all forms of
financial services.
Finally, although a great deal has been written about the difficulties accessing financial
services faced by people living in a ‘rural area or village’, levels of financial exclusion
were very similar to those found among people living in a ‘small or middle sized town’
or a ‘large town’ (which presumably includes cities).
3.1
Variations in the types of people who are financially excluded across
EU 15 countries
It is interesting to analyse whether the same types of people are financially excluded in
countries with high levels of financial exclusion as are found in those where the levels are
low, or whether a lower incidence of financial exclusion means that it tends to be even
more concentrated among certain groups in society.
To undertake this analysis we have concentrated on people who lacked any of the three
types of financial services, and we have grouped countries to give us sufficient numbers
for analysis. In doing this we have looked at three groups: countries with below-average
levels of financial exclusion; those with average levels and, finally, countries with high
levels of financial exclusion.
10
The Eurobarometer data does not distinguish between these two groups. We could, however use the age
variable to disaggregate, but will do this later.
21
Table 4
Types of people likely to be financially excluded by whether live in a
country with high, average or below average level of financial exclusion
%
All
High11
Base14
Cell percentages
Level of financial exclusion
Average12
Low13
All
%
Base
%
Base
%
Base
16
2,866
5
3,202
1
9,385
6
15,453
201
9
21
15
83*
608
1,009
1,159
15
4
7
3
223
883
1,039
1,016
2
1
2
1
531
2,183
3,080
3,468
9
3
7
5
837
3,674
5,128
5,643
8
7
28
36
31
18
397
966
373
221
166
743
1
2
10
11
15
5
265
1,452
546
216
149
574
1
1
3
3
2
2
628
4,194
812
598
668
2,485
3
2
11
15
10
6
1,290
6,612
1,731
1,035
983
3,802
13
14
~
~
18
20
618
1,205
~
~
56*
942
4
4
20
0
27
5
429
1,825
129
57*
93*
669
1
1
1
0
2
2
792
4,986
259
309
499
2,540
6
4
10
2
9
7
1,839
8,016
428
371
648
4,151
23
11
5
36
1,333
776
536
221
6
5
1
11
867
1,629
481
225
2
2
1
2
1,828
3,785
3,077
695
9
4
2
14
4,028
6,190
4,094
1,141
13
20
1,372
1,494
5
5
1,531
1,671
1
2
4,510
4,875
4
7
7,413
8,040
32
11
11
24
442
979
840
605
11
5
3
4
532
1,176
908
586
2
1
1
2
1,239
3,347
2,976
1,823
11
4
4
7
2,213
5,502
4,724
3,014
19
16
15
935
1,048
871
6
5
4
930
1,111
1,140
1
2
2
3,164
3,739
2,369
6
6
5
5,029
5,898
4,380
8
5
1
1
379
532
291
441
3
1
0
1
1,861
1,834
1,590
1,790
8
4
3
2
2,733
2,802
2,293
2,572
Family type:
Lone parent
Couple with children
Single no children
Couple no children
Respondent work status:
Self employed
Employed
Looking after home
Student
Unemployed
Retired/unable to work
Head of household work status:
Self employed
Employed
Looking after home
Student
Unemployed
Retired/unable to work
Age left education:
Up to 15
16-19
20 +
Still studying
Gender:
Male
Female
Age:
18-25
26-44
45-64
65 +
Geographical area:
Rural area or village
Small or middle sized town
Large town
Income quartile:
Lowest
31
493
Second lowest
12
436
Second highest
13
412
Highest
7
341
Source: Eurobarometer 60.2 Base: All adults aged 18 or over
11
Greece, Italy and Portugal, which had levels of exclusion of above 15 per cent
Spain, Ireland and the UK and exhibited levels of exclusion of between two and eight per cent
13
Belgium, Denmark, Germany, France, Luxembourg, Netherlands, Finland, Sweden and Austria. Typically, they had
levels of exclusion of below two per cent
14
All base figures are un-weighted
* These percentages should be used with caution owing to the small bases.
~ Numbers too small for analysis.
12
22
On the whole, the same types of people had an above-average likelihood of being
financially excluded regardless of whether they lived in an EU 15 country with a high or
average level of financial exclusion (Table 4). The exceptions were women and older
people (aged 65 or over) who only really had an enhanced risk of financial exclusion in
countries where the prevailing rate was high.
In general, the likelihood of exclusion was considerably lower for all groups of people in
countries with average levels of financial exclusion nationally than it was for their peers
living in countries with high levels. The likelihood fell still further among people living
in the nine countries where financial exclusion was very low, so that no group of people
really stood out as being especially affected. Taken together, this suggests that where
countries have been successful at reducing the numbers excluded from financial services
all groups in society benefit, with none getting seriously left behind.
We also plan to run regression analysis, and explore the role that attitudes play (using
factor analysis), but later in the project.
23
4 The causes and consequences of financial exclusion
The earliest analysis of financial exclusion concluded that it involves “those processes
that serve to prevent certain social groups and individuals from gaining access to the
financial system” (Leyshon and Thrift, 1995). The authors contend that people with
limited incomes and certain disadvantaged social groups represent too high a risk as
customers for mainstream financial institutions, which then avoid geographical areas
where these groups of the population live. In other words, financial exclusion was seen
in terms of physical and geographical access. Since then there has been a large body of
research that has identified a wide range of other factors that restrict access to and use of
financial services.
A range of societal factors have been identified as having an impact on people’s access to
and use of financial services. These include liberalisation of financial services markets,
which has, in turn, led to an increase in the number and complexity of financial products
and providers. While this has widened access, the confusion that arises makes it difficult
for some people to engage with financial services (Anderloni and Carluccio, 2006;
Atkinson et al, 2006; Kempson et al, 2000). Secondly, there are structural changes in
labour markets, leading to greater ‘flexibility’ and growing job insecurity, which in some
countries is accompanied by high levels of youth unemployment (Anderloni and
Carluccio, 2006). Thirdly, tightening of money laundering rules in response to terrorist
attacks means that many people face difficulty getting access to services (Anderloni and
Carluccio, 2006; Kempson, 2000). Fourthly, social assistance programmes can play an
important role – with both the level of payments and the method by which they are made
having an effect on levels of financial exclusion. And for benefit receipt the rules may
deter people from saving where that might reduce the level of assistance they would
qualify for (Anderloni and Carluccio, 2006; Citizens Advice; 2006; Kempson and
Whyley, 1999). Fifthly, financial exclusion is affected by demographic changes such as
rising levels of divorce and the tendency for young people to leave home at an older age
(Anderloni and Carluccio, 2006; Kempson et al, 2000). Finally, as reported in section 2,
there is a link between levels of banking exclusion and levels of income inequality as
measured by Gini coefficients (Kempson, 2006).
Much of the previous research and analysis has, however, tended to concentrate on the
reasons for exclusion in specific areas of financial services. In the area of transaction
banking a range of factors covering both supply and demand has been identified across a
wide range of countries (for an overview see: Anderloni and Carluccio, 2006; Corr, 2006;
Kempson, 2006). On the supply side, banks refuse to open full transaction bank accounts
for certain groups of people, such as those with a poor credit history, unstable patterns of
employment or those who fail credit scoring systems because their characteristics mean
they are assessed as a high risk. People unable to satisfy identity requirements also find
it difficult to open an account. This applies especially to migrants but can also affect a
wider group of people who do not have the standard forms of identity required. This is a
particular problem in countries that lack identity cards, where banks rely on passports and
driving licences instead.
24
On the demand side, the terms and conditions and charges associated with transaction
bank accounts deter both access and use. This includes such things as minimum
balances, monthly charges and charges per transaction – especially if the charges are
regressive and disproportionately affect people on low incomes. People are also deterred
from accessing and using transaction banking services for a range of psychological and
cultural reasons. These include elderly people who are part of a ‘cash only’ generation,
migrants and also people on low incomes generally, who frequently see banking as only
being appropriate for people who are better off than they are and fear losing control of
their money if they cease to deal only in cash. In Italy, people are deterred from opening
an account if it does not have an overdraft facility to ease access to money paid in.
Delays in clearing cheques paid into an account mean that people cannot have instant
access to any money paid in (Anderloni, 2003).
The balance of importance of these factors does, however, vary between countries. In
Italy, for example, transaction bank charges are very high (Anderloni and Carluccio,
2006). In the UK there are no transaction charges but proof of identity is a particular
problem along with very high charges for unauthorised overdrawing of accounts (Collard
et al, 2001; Kempson and Whyley 1998; Kempson, 2006). While in France many people
are denied access to an account as a result of over-indebtedness (Gallou and Le Queau,
1999; Kempson, 2006). In Sweden, which has traditionally had high levels of banking
inclusion, the general move to internet-based banking is denying use of transaction
accounts to those who lack access to the internet (Anderloni and Carluccio, 2006). This
last point is important because it underlines the need to constantly reassess barriers to
access and use.
Moving on to consumer credit, previous research has identified a range of similar factors
– again relating to both supply and demand. Refusal by credit companies is a very
significant reason across all countries, as a result of lack of information about an
individual at credit reference bureaux, an adverse credit history or failing the score card
operated by creditors as a consequence of lack of stable employment, low income and
other personal characteristics (Corr, 2006; Ellison, Collard and Forster, 2006; Kempson
and Whyley, 1999; Kempson et al, 2000; Nieri, 2006). Often just as significant is the fact
that some people do not apply for credit as they think they will be turned down. (Nieri,
2006; Kempson and Whyley, 1999; Kempson et al, 2000). It has been estimated that
across France, Italy and Spain, 16 per cent of people have actually been refused credit
and another six per cent did not apply because they expected to be refused (Nieri, 2006).
Also significant in limiting access to and use of unsecured credit is a fear of borrowing –
and especially of using forms of credit such as overdrafts and credit cards where it is easy
to lose control over spending (Kempson and Whyley, 1999; Kempson et al, 2000; Collard
and Kempson, 2005). People who cannot easily gain access to unsecured credit are often
deterred by the high cost and poor contractual terms obtained through intermediaries
(Nieri, 2006) or in the sub-prime market (Collard and Kempson, 2005). Many people on
low incomes need to borrow fairly small sums of money for a short period of time. They
also prefer fixed term loans which they know they will repay. Most mainstream lenders
have minimum amounts that they are prepared to lend as a fixed term loan which are way
25
in excess of the requirements of such people (Carbo et al, 2005; Collard and Kempson,
2005; Corr, 2006). Finally, religion can act as a barrier to use – especially in Muslim
populations (Collard et al, 2001; Collard and Kempson, 2005; Kempson et al, 2000)
In contrast to transaction banking and unsecured credit, there has been rather less
investigation of the reasons why people lack savings accounts. Research in the UK has,
however, shown that the explanation is not as simple as people not having sufficient
money to save. Many people on low incomes do save but do so outside formal savings
organisations, mainly in cash at home or through informal savings and loans schemes
(Kempson, 1999). There are a number of explanations for this. First, some people face
the same difficulties providing proof of identity as we have noted for transaction bank
accounts. Secondly, as we have seen above, clearing times for cheques deter people in
Italy from opening accounts that do not allow instant access to the funds deposited
(Anderloni, 2003). But, perhaps, more significantly, people do not put their savings into
an account with a bank or other similar organisation because they believe that a large
minimum deposit is required or they feel that using such institutions is inappropriate if
they have only small sums of money to save. Informal savings schemes are more
accessible psychologically (Collard, 2001; Corr, 2006; Kempson, 1999; OLR, 2006).
The number and complexity of savings products also acts as a deterrent (Citizens Advice,
2006). Finally, religious factors deter people from opening savings accounts just as they
deter them from using credit (Collard et al, 2001; Kempson 1999).
4.1
An overview of the causes of financial exclusion
A number of commentators have attempted to pull together the various factors affecting
access to and use of financial services. The earliest of these was in 1999 which identified
six key factors (Kempson et al 2000):
Access exclusion:
the restriction of access through the processes of risk
assessment;
Geographical exclusion: lack of access to branches of banks and savings institutions
and to cash machines.
Condition exclusion:
where the conditions attached to financial products make
them inappropriate for the needs of some people;
Price exclusion:
where some people can only gain access to financial
products at prices they cannot afford;
Marketing exclusion:
whereby some people are effectively excluded by targeting
marketing and sales;
Self-exclusion:
people may decide that there is little point applying for a
financial product because they believe they would be
refused. Sometimes this is a result of having been refused
personally in the past, sometimes because they know
someone else who has been refused, or because of a belief
that “they don’t accept people who live round here.
26
The authors note that the relative importance of these factors varies between different
types of product. So, for example, access exclusion and self-exclusion are especially
important in determining use of consumer credit; while condition and price exclusion are
much more important with regard to banking and insurance. They also point out that
these various barriers lead to difficulties in both accessing financial services and using
them. As a concrete example, many people on low incomes do have a transaction bank
account but choose not to use it because they cannot afford the charges to do so.
This analysis has been used and developed by a number of subsequent authors (see for
example, Anderloni, 2003; Anderloni and Carluccio, 2006; Beck and de la Torre, 2006;
Carbo et al, 2004; Devlin, 2005; Gloukoviezoff, 2005; Honohan, 200515) and has
gradually been refined.
Speaking at a World Bank conference in 2006, Kempson, re-grouped the factors
restricting access to financial services, separating supply and demand side factors as
follows:
Supply factors
• Refusal by financial service companies
• Identity requirements
• Terms and conditions
• Charges
• Physical access problems
Demand factors
• Income considered too low
• Fear of loss of control
• Psychological barriers
• Cultural barriers
• Religious barriers
While Gloukoviezoff (2005) has suggested the following schema, which has been used
and adapted slightly by others (Anderloni and Carluccio, 2006). This subdivides the
supply and demand side factors into those creating difficulties of access and those
creating difficulties of use.
15
Beck and de la Torre (2006) have identified three groups of barriers: ‘geographic limitations’; ‘socioeconomic limitations’, where access is denied to certain socio-economic groups through price, conditions,
discrimination or limited financial capability and ‘opportunity limitations’ where people are denied access
because they lack collateral or are not well connected. Honohan (2005), in contrast, proposes the following
three categories: ‘price barrier’ , ‘information barrier’ when a household’s credit worthiness cannot be
established and ‘product and service design’ when financial service providers fail to offer services that
meet the needs of people on low incomes.
27
Table 5
Difficulty of access versus difficulty of use
Difficulty of Access
Supply side factors
Direct screening
-
Indirect screening
-
Demand side
factors
Self-exclusion
-
Customer profile
scored “too costly to
serve”
-
Company policy to decline to serve some customers
(Access exclusion)
Company policy to close/ not offer services in unprofitable areas (i.e. branch closures, failure to provide
cash machines in deprived areas) (Geographical
access exclusion)
No marketing to less profitable/ market segments
(Marketing exclusion)
Consumers give up/refuse to use some services (Selfexclusion)
Difficulty of use
Supply side factors
-
Customer profile
scored
“too risky to serve”
-
-
Demand side
practices
Eschew banking
relationship
-
Companies force a wider usage of services (policy of
packaging products or link some services to others,
etc.)
Companies charge higher fees for those services that
are more frequently used by undesired customers
(Price exclusion)
Company uses penalty clauses and/or charges for non
payment or dishonoured cheques to discourage high
risk customers (Price and condition exclusion)
Companies take advantage of lack of knowledge of
their rights from weak customers (undue foreclosure,
dishonour of plans in case of over-indebtednesses.)
Customers do not keep company informed about
informed about financial difficulties
Customers prefer to use alternative financial providers
(eg cheque cashers, sub-prime lenders)
Source: Gloukoviezoff (2005) (edited)
However, none of these models of exclusion deals adequately with the complexity of the
situation described briefly above. We have, therefore, developed a new schema for
financial exclusion that combines ideas from each of the existing models. This is
presented in the table below, which categorises the barriers into three groups: societal;
supply and demand. The table also indicates whether they act to limit access or use, and
also the type of financial services provision where they have their main effects. It should,
however, be re-iterated, that not all these factors will necessarily apply in any one
country. Moreover, the balance of their importance will also vary from country to
country. It is also important to note that the reasons for financial exclusion are complex
and these barriers do not often act in isolation. So any one individual may be prevented
or deterred from using financial services for several, often reinforcing, reasons.
28
Table 6
Factors affecting difficulty of access or use
Access or use
The possible relationship*
Type of service affected**
Societal factors
Liberalisation of markets
Access
(+) increased competition may result in more attention been paid to all market segments or
(-) less attention to marginal market segments
(-) levelling the regulation of different banking/financial institutions generally resulted in
the disappearance of types of financial institutions which traditionally served people
on low incomes
Banking**, Credit; Savings
Labour market changes
Access
Banking; Credit
(-) more flexible markets mean less stable incomes and, often, less creditworthiness
Money laundering rules/Identity checks
Access; Use
(-) preventing the use of the financial system for money laundering and financing of
terrorism brings a greater bureaucracy to financial transactions
Banking; Savings
Fiscal policy
Access; Use
(-) duties and taxes on banking services may represent a heavy burden for
people on low incomes people, reducing the convenience of using the services,
(+) but fiscal measures can provide incentives (reducing cost or granting fiscal
advantages) for financial inclusion
Banking; Savings, Credit
Social assistance
Access; Use
(-) paying social assistance in cash can deter people from opening a bank account
(+) but antipoverty policies can facilitate financial inclusion
Banking; Credit, Savings
Demographic changes
Access; Use
(-) older people generally suffer more from the technological divide
(+) young people have a higher propensity to use credit, but
(-) their risk of over-indebtedness is higher and may lead to exclusion.
Banking; Credit;
Income inequalities
Access
(-) higher income inequalities and literacy disparity are normally associated with
greater difficulties of access
Supply factors
Geographical access
Risk assessment
Price
Product design (terms and conditions)
Service delivery (eg internet)
Complexity of choice
Marketing
Access
Access
Access; Use
Access; Use
Access; Use
Access
Access
(-) / (+)
(-) / (+)
(-) / (+)
(-) / (+)
(-) / (+)
(-) / (+)
(-) / (+)
Access
Access
Access
Access; Use
(-)
(-)
(-)
(-)
Access
Access
Access
(-)
(-)
(-)
Demand factors
Belief that not for poor
Fear of loss of financial control
Mistrust of providers
Concern about costs
Preference for alternative providers and
cultural factors
Religion
Opposition to use
Generally, in the past, supply factors played a
negative role (obstacles), recently sometimes new
strategies of some innovative banks turned these
factors positively in order to satisfy the specific needs
of marginal segments
Listed demand factors generally play a negative role.
Initiatives to improve financial capability and literacy as
well as actions aimed to encourage to develop
confidence in the banking system
may reduce their negative impact.
Banking, Credit
Banking; Savings
Banking; Credit
Banking; Credit
Banking; Credit
Banking; Credit; Savings
Savings
Banking; Credit; Savings
Banking; Credit; Savings
Banking; Credit
Banking; Credit; Savings
Banking; Credit
Banking; Credit; Savings
Banking; Credit; Savings
Credit
* (+) if the factor facilitates financial inclusion, (-) if the factor causes financial exclusion ** Note in this context ‘banking’ refers to ‘transaction banking’
4.2
Links between financial exclusion and social exclusion
The links between financial exclusion and social exclusion are complex. Financial
exclusion can contribute to social exclusion – for example, not having a bank account
into which wages can be paid can be a barrier to taking a job; not having access to credit
can make it more difficult to be part of the wider consumer society. On the other hand,
financial exclusion can be a consequence of social exclusion – through limited access to
mainstream financial services in areas of high deprivation, for example.
Societal, supply and demand factors can play a role in the exclusion or limited inclusion
of individuals (see Table 6). So, the lack of permanent address and identification
documents, the lack of an “official” or stable job, not speaking the national language, and
living in deprived economic circumstances16 may render it more difficult to have easy
and fair access also to basic financial services. Indeed, empirical evidence suggests that
people who are unbanked persons or marginally served by mainstream financial services
are more likely to belong to segments of the population who are socially excluded or only
marginally included (Anderloni, 2003; Anderloni and Carluccio, 2006; Kempson and
Whyley, 1999).
For these reasons, previous studies have emphasised the causal link between financial
exclusion and the broader phenomenon of social exclusion (Kempson and Whyley 1999;
Kempson et al, 2000; McKay and Collard, 2006). Indeed, financial exclusion has been
seen as a process that contributes to the development of social exclusion at both the
individual and the collective level. “Where whole communities have limited access to
financial products, the process becomes self-reinforcing and an important contributor to
social exclusion more generally” (Kempson & Whyley, 1999).
We consider the consequences of financial exclusion in more in depth below (section
4.4).
4.3
Links between financial exclusion and over-indebtedness
The relationship between financial exclusion and over-indebtedness is equally complex.
First, as we have seen above, people who are over-indebted or have been over-indebted in
the recent past can face real difficulties getting access not only to unsecured credit but
also to transaction banking facilities (Anderloni and Carluccio, 2006; Gloukoviezoff,
2005a, 2005b; Kempson, 2006).
16
An example of this is the fact that in credit scoring models, variables such as area of residence (i.e.
postal code or also specific address) kind of job position, period of time in the same working place and of
living at the same address are used in order to define the credit score. These models are mainly used for
deciding whether to accept or to refuse a demand for unsecured loans and mortgages, but often represent a
tool for customer segmentation and for identifying “undesirable” customers.
Secondly, the design of bank accounts – especially where there are high penalty charges
for unauthorised overdrafts and/or where payments are withheld through lack of funds in
the account - can push people with temporary liquidity constraints into financial difficulty
(Collard et al, 2001; Kempson and Whyley, 1999).
Finally financial exclusion can lead people into over-indebtedness. Those who cannot
access mainstream credit providers either turn to high-cost alternatives (intermediaries or
sub-prime lenders) or, worse still, to illegal lenders that not only levy very high charges
but arbitrary terms and conditions (Collard and Kempson, 2001; Corr, 2006; Ellison et al,
2006). This often causes people to fall into financial difficulty and therefore the situation
risks becoming really incurable. Where this kind of provider operates at the margins of ,
legality, institutional remedies to redress the situation (debt advice services, special
procedures for county court administration orders, debt rescheduling and debt
adjustment) are often avoided17.
4.4
The consequences of financial exclusion
The severity of the consequences of financial exclusion depends to a large extent on the
prevailing level of financial exclusion in a country. It is, for example, more problematic
to rely on cash transactions in a country where almost everyone else has a bank account
than it is in one where a significant proportion of the population lack one.
4.4.1 Banking
People with no bank account at all face difficulties dealing with cheques made out in their
name by a third party. Often they have to pay to have the cheque cashed and in some
countries there are networks of cheque cashing companies whose main purpose is to offer
this service (Anderloni and Carluccio 2006; Hogarth and O’Donnell 1999, Kempson and
17
See for the UK, H.M. Treasury, Speech given by the Economic Secretary to the Treasury Ed Balls
MP, to the Resolution Foundation Conference, London, March 14 th 2007 “Managing debts, like a mortgage
or a credit card, is part of our every day lives. But debt can quickly become unmanageable in the event of
an unexpected drop in income - especially for low-income families with little or no savings. Research has
shown that almost half of debt problems are caused by a surprise event such as the loss of a job, a longterm illness or family break up. And without access to mainstream financial support or advice, and with no
savings to fall back on, families can find themselves forced to use extortionate illegal loans from criminals
who use violence and intimidation to extort money from the poor”. Tackling illegal loans sharks around the
country in the UK is a priority and the Government ‘s 120 million Financial Inclusion Fund has been
devoted to this goal too.
In Italy to combat loans sharks two special funds have been created. They are aimed, respectively, to prevent
people from falling into the usury trap and to help those who have already fallen to get out of those
devastating conditions. The first such fund is called “Fund for the prevention of usury”. It finances special
funds that actually help people at risk. The second operates in the following way: it offers banks or other
credit institutions guarantees in order to permit people who, according to foundation’s constitutional rules,
merit credit but are not able to obtain it on the open market.
31
Whyley, 1998; Kempson et al, 2000). It is also difficult to take employment in countries
where payment of wages is by electronic transfer into a bank account (Citizens Advice,
2006; Treasury Committee, 2006b).
Lacking a transaction bank account with payment facilities can make payment of bills
costly – particularly when such accounts are the norm and outlets for paying in cash are
closed (BMRB, 2006; Corr 2006; Kempson and Whyley, 1998; Kempson et al, 2000).
Moreover, the cost of banking services bought separately is generally higher than those
accessed within a stable relationship with the bank. Consequently, occasional payments
of utility bills, payment of taxes, bank transfers to third persons, cashing cheques and
money orders at the banking counter are more expensive for those who are not customers
of the bank. Therefore there are relevant negative economic consequences of dealing
occasionally with banks, not only of using alternative financial services providers.
Many utility companies offer discounted rates for people paying their bills electronically
each month (BMRB, 2006; Corr, 2006; Kempson and Whyley, 1998; Kempson et al,
2000). People lacking a payment card (debit or credit card) are also unable to take
advantage of the lower prices of goods and services bought in this way.
4.4.2 Credit
People unable to get credit from banks or other mainstream financial providers often have
to use intermediaries or sub-prime lenders where the charges are higher and the terms and
conditions may be inferior (Anderloni and Carluccio, 2006; Collard and Kempson, 2005;
Corr, 2006; Kempson et al, 2000; Treasury Committee 2006a).
4.4.3 Savings and asset building
Finally, there is evidence that without savings, people have no means of coping with even
small financial shocks or unexpected expenses18. While those who keep savings in cash at
home are vulnerable to theft (Kempson and Whyley 1999; Kempson et al, 2000) and do
not benefit from interest payments (Kempson et al, 2005).
18
In respect to this point see the reference in note 11.
32
5 Existing policy approaches to financial exclusion
Although various approaches have been adopted to achieve financial exclusion, these can
be grouped into three broad categories: market responses, self-regulation and government
intervention as facilitator or legislator. As will become clear, the various response
models are more often mutually inclusive rather than exclusive.
We have discussed each of these briefly below in general terms and in Table 7 we draw a
map of the experiences matured in Europe, based on our knowledge to date – this will be
up-dated in light of the information provided in the country reports19.
5.1
Market responses
It is possible to identify two types of market responses:
 provision of financial services by niche providers,
 development of services by mainstream providers that are targeted on niche markets
5.1.1 Niche providers
Traditionally, most EU countries have a range of banks or other financial institutions that
have as a key objective the provision of financial services for people on low-to-moderate
incomes and/or meeting the needs of disadvantaged or rural communities with limited
access to financial services. They often operate only in a limited geographical area and
are closely linked to the needs of that area, but are generally backed by a network
providing expertise and professional management as well as a wide range of products to
sell. These organisations include savings banks, post offices, credit unions and other
mutual or co-operative providers.
Such organisations are usually rooted in the history of the area in which they operate, but
in some cases they have undergone major changes, such as loss of mutual or cooperative
status or privatisation, which have sometimes led to a change in their historical mission,
bringing it closer to that of commercial banks. In other cases, in order to ‘level the
playing field’, there has been an erosion of the tax, legal, or other benefits that acted as
compensation for the burden of serving ‘marginal’ market segments rather than just
pursuing a profit.
For these reasons, the country reports and our final report should consider the tendency of
such institutions to change and the debate on the necessity to modify their status, along
with the consequences that have resulted.
19
Unlike previous sections, this one is presented more as an overview with indications in the text of the
way that the country reports might collect additional information for inclusion in the final report.
33
5.1.2 Development of new products and services by mainstream providers
There are examples of mainstream providers developing new products and services for
people on low-to-middle incomes as part of their normal commercial business. These
include:
 design of products that are more appropriate to the needs of people who are
financially excluded;
 working in partnership with not-for-profit organisations or government to reduce
costs;
 reducing of barriers to access services and service delivery system;
 promoting initiatives to help the customer learn more about the banking system
and about how the products on offer can help them meet their own needs.
Product design
Beginning with product design, some banks have developed simple, low-cost transaction
bank accounts to meet the needs of people on low and unstable incomes. These take
advantage of developments in technology – such as the use of electronic payments in
place of cheques – to reduce the costs and risks of serving people for whom these would
otherwise be a barrier. The use of mobile telephony for remitting money is another
example.
Reducing cost through partnerships
Other developments involve partnerships with not-for profit organisations or government.
A good example would be the Insurance with Rent schemes in the UK. These provide
low-cost home contents insurance to low-income tenants living in disadvantaged areas
where premiums would otherwise be high. Block policies are provided by mainstream
insurance companies to social landlords who then act as an ‘agent’ for the insurance
company, selling insurance to their tenants and collecting premiums with their rent. By
pooling the risk premiums are kept low. Social landlords are paid a commission by the
insurance company for acting in this way and this money is used either to reduce directly
the cost of premiums for tenants or to pay for improved security on tenants’ properties –
which reduces the level of burglaries and insurance claims and, in turn, reduces the level
of the insurance premiums in the longer term.
Other examples of partnerships designed to reduce costs include the UK matched savings
scheme, the Saving Gateway, which has been operated by a commercial bank on behalf
of the Government on a pro bono (non-commercial) basis, and banks providing loan
capital and staff expertise to credit unions and other not-for-profit organisations so that
they can widen access to affordable fixed term credit. Indeed credit is an obvious
candidate for innovation in this area, since most people on low incomes want small, fixed
term loans, which are costly to provide. Most mainstream providers set a minimum sum
they are prepared to lend in this way, with revolving credit (credit cards and overdrafts) –
which are shunned by those on low incomes - intended for smaller transactions.
34
Reducing barriers to access
Innovations to reduce barriers to improve physical access include the establishment of
outlets and offices open to the public in deprived areas. Innovation in service delivery
has often been achieved through partnerships with intermediary organisations (e.g. post
offices, credit unions and housing associations) that have the advantage of being closer to
low-income market segments as well as offering lower distribution costs. The Bank of
Scotland has, for example, worked with a tenants association in a poor neighbourhood of
Edinburgh to offer branch services through their offices. Another example would be the
Universal Banking Service through which post offices can be used to carry out day-today transactions with a basic bank account held with any of the main UK banks
Partnerships with local not-for-profit organisations can also widen access to credit as they
can use their detailed personal knowledge of their customers to facilitate more precise
risk assessment and management procedure.
Raising financial capability
People at risk of financial exclusion often need encouragement to develop confidence in
financial services and ensure that they are able to communicate adequately with financial
intermediaries. A number of initiatives have been designed to tackle mistrust of
commercial financial providers; targeting marketing and delivery at this market with
easily understood, honest and comprehensive advertising and promotional material;
working with trusted intermediaries (see above); and providing financial support for free
and independent information and advice services.
Corporate social responsibility has become an important part of the development,
marketing and external communication strategies of profit-oriented institutions like
commercial banks. As a result, a focus on marginal customers has become part and parcel
of banks’ social responsibility agenda, with practical consequences both in the design of
appropriate financial products to reach the financially excluded, and in the launch of
initiatives to promote financial literacy.
5.2
Voluntary charters and codes of practice
Voluntary charters and codes of practice, developed by the banks themselves through
their trade associations to make provision for ‘life-line’ or ‘basic’ bank accounts, are a
common response to financial exclusion. In many cases, these developments have been
prompted and encouraged by governments concerned to increase social inclusion.
As shown in Table 7, examples of this kind are found in France (the first movers in this
direction in 1992), in Germany (1995 and under discussion today) in Belgium (1997) and
in the UK (introduced in 2001 and extended a number of times since)
The earliest of these voluntary charters was introduced in France in 1992. Developed by
the French Banker’s Association it committed banks to opening an affordable account
with facilities such as a cash card, free access to a cash machine network, bank statements
35
and a negotiable number of cheques. Nevertheless, the inefficiency of the charter drove
the government to legislate about basic banking services in July 1998 (see below for
further detail).
In Belgium, a voluntary code of practice was introduced in July 1997 by the Belgian
Bankers Association (ABB/BVV) following a report commissioned by the Ministry for
Economic Affairs. This code provides for basic banking services for people on modest
incomes who lack a bank account. At a minimum this ‘call deposit account’ offers three
basic types of transaction: money transfers, deposits and withdrawals and bank
statements – although individual banks may opt to offer other services if they wish. Up to
three transactions a month can be made at a cost of less than 10 Euros per year. Some
banks permit withdrawals using a cash card at a cash machine. All transactions are realtime and any that would take the account into overdraft are stopped.
In Germany, despite a number of attempts to introduce a legal entitlement to a current
account that did not carry an overdraft facility, a voluntary code was introduced by the
German Bankers Association in March 1995. This makes provision for an ‘Everyman’
current account, offering basic banking transactions but without an overdraft facility.
Individual banks have different interpretations of the ‘Everyman’ account. The extent to
which this voluntary code has reduced banking exclusion is disputed. On the one hand,
figures submitted by the banking industry to the Bundestag show that between June 1996
and June 2000 more than 800,000 ‘Everyman’ accounts had been opened – an increase of
350 per cent. Consumer representatives, however, question these figures. In particular,
they claim that the majority of people opening these accounts are young people and not
those on low incomes (Institut fur Finanzdienstleistungen, 2000).
In the UK, there is a general Banking Code covering all aspects of customer service by
banks, credit card companies and organisations offering savings accounts. This Code is
underpinned by a detailed set of Guidance to subscribing companies and compliance with
the Code is actively monitored by an independent body – the Banking Code Standards
Board. The most recent edition of the Code gives an undertaking to make ‘basic bank
accounts’ available to everyone who might benefit from one (see below for further
detail).
The effectiveness of such self-regulation should be judged by whether the expressed
commitment meets local needs and demand, as well as the tone and extent of such
commitment and the measures available to ensure that commitments are honoured and to
encourage changes to bring voluntary charters or codes of practices more in line with
what is needed. A good example in this regard is provided by the British Banking Code,
which is periodically reviewed by an independent reviewer and where compliance is
routinely monitored by an independent Banking Code Standards Board. This has
included four mystery shopping studies to assess compliance with the basic banking
commitment (see Banking Code Standards Board, 2005).
36
5.3
Government intervention
Governments have intervened in two ways: as a facilitator of access to financial services
and as legislator.
5.3.1 Government as facilitator
Governments have acted as a facilitator to financial inclusion in a number of ways,
including:
 providing an understanding of the problem
 promoting and supporting market initiatives
 contributing directly to the provision of financial services
 providing positive incentives to encourage the changes in the banking system to
promote financial inclusion.
 tackling the reluctance to use financial services by those who are excluded.
Governments have commissioned or undertaken research projects to investigate the
causes of financial exclusion and recommending measures to combat them.
They have taken steps to promote or support initiatives by commercial financial service
providers. This includes encouraging banks to offer basic bank accounts, and promoting
easier to access to the basic financial products provided by banks, for example through
the post office network. They have also intervened in markets to stimulate low-cost low
risk products – such as stakeholder pensions and the proposed ‘personal (pension)
accounts’ in the UK. They have taken steps to assess the effectiveness of initiatives to
promote financial inclusion, including verifying that financial products created to
promote inclusion are actually meeting the needs of the target population and requiring
scrutiny and approval of marketing material by an independent regulator. In some
instances this has led to the establishment of voluntary codes and charters by financial
service providers.
Governments have also contributed more directly to the provision of financial services
for people on low incomes. This includes the provision of funds for not-for-profit
organisations (such as credit unions) that exist to meet the financial needs of people on
low incomes. In other instances Governments have been the direct provider of financial
services designed to meet the needs of people who are financially excluded. The UK
Government’s Saving Gateway is a good example, as is the Child Trust Fund – a
Government-led initiative to ensure that all children have a financial asset when they
reach the age of 18.
The final area consists of positive action: incentives aimed at encouraging the use of
banking and bank products by people at risk of exclusion. These generally fall within one
of the following four categories:
 tax relief (products free of tax or with tax benefits);
 guarantees to reduce credit risk and therefore increase creditworthiness;
37


occasional monetary incentives (such as bonuses and premiums under specific
circumstances);
incentives resulting from cooperation between public and private bodies, in which
monetary incentives from private organisations, usually a not-for-profit
institution, are matched by tax relief from the public body20.
National and local governments can also play an important role in improving the overall
climate in which such activity takes place, by raising awareness and improving the image
of financial products and services, especially among the target population. Examples
include the launching of free publications, seminars at secondary and post-secondary
level, and the development of creative approaches aimed at adults. In the UK, the
Government-appointed Financial Inclusion Taskforce has set up a national campaign,
working with local organisations, to tackle the psychological barriers to using financial
services. These initiatives have had the aim of helping people develop financial skills, as
well as promoting the use of technology, encouraging confidence in financial providers,
and strengthening trust in networks closely linked to the public sector, for example postal
banking or savings banks.
In some countries, these various functions are highly co-ordinated. In the UK this is
being achieved through the Government appointed but independent Financial Inclusion
Taskforce that is accountable to the Chancellor (Finance Minister) who, in turn, reports to
Parliament. Its role is to find ways of ensuring financial inclusion, so it is, for example,
monitoring progress by the banks towards halving the number of people without a bank
account; working with banks to create better bill-payment services; overseeing the capital
funds given to not-for-profit lenders to allow expansion of their services; providing
finance for skills building among not-for-profit lenders; running a public campaign to
overcome disengagement from financial services and overseeing the financial support for
free independent debt advice services. Future work will include facilitating access to
insurance and to savings.
5.3.2 Government as legislator
Legislative action by governments to promote financial inclusion can be grouped in three
main areas:



direct legislation, which imposes upon banks and other financial intermediaries an
obligation to provide, for example, universal banking services;
indirect regulation, designed to remove obstacles that reinforce financial
exclusion;
indirect legislation to control providers that exploit the financially excluded.
20
It is easy to understand that, for reasons connected to the image of public policies, it is easier for public
bodies to provide incentives in the form of tax relief (i.e., lower revenues) than as direct benefits (i.e.,
higher expenditure).
38
Direct legislation typically includes a legal requirement that every citizen/resident should
have access to specific basic transaction banking services, as well as details of how they
are to be guaranteed. These requirements usually apply either to specific categories of
provider or to an entire range of banking institutions and financial intermediaries. The
main purpose of such provisions is to define the types of services that make up the pool
of ‘basic’ banking services, as well as pricing criteria and other requirements. Such laws
exist in France and Belgium for instance.
Indirect legislation, on the other hand, includes provision aimed at removing specific
obstacles hindering the involvement of some people with the banking system. Such
obstacles can include ‘blacklists’ of people who have failed to repay their debts in the
past, or legal requirements concerning the verification of customer identity. Another
example is the alleviation of the disproportionate impact of taxes on small transactions
frequently undertaken by those customers at risk of exclusion.
Indirect legislation has also been used to curb the behaviour of financial service
institutions that seek to exploit people who are financially excluded. The French
Government, for example, enacted legislation to curb the activities of rental purchase
companies, whose charges for credit are high and lack transparency.
5.4
An overview of responses across EU countries
Table 7 offers a preliminary picture of the state of our knowledge about the diffusion of
the various kinds of responses adopted in various European countries. It will be expanded
using information provided in the country reports. More detailed information is provided
in Appendix II.
5.5
Summary and next steps
In most European countries the financial services industry has high levels of solvency and
efficiency and is able to respond quickly to the evolving needs of a changing economy.
New technologies, higher living standards, new styles of living and working call for
financial innovation as regards product and delivery channels. While the majority of
people have access to a wide range of financial products, a minority is unable to access
even the most basic financial services.
There are big variations across Europe in both the level of financial exclusion and the
severity of the problems caused by it, and the attention paid to these issues.
Consequently the number and range of initiatives undertaken also varies widely.
Financial inclusion is an important goal for an inclusive society, including providing
basic bank accounts and offering appropriate payment services; bringing more people on
low incomes into savings and asset ownership; promoting access to affordable credit and
helping people when they find themselves in financial distress.
Table 7 Overview of national responses to facilitate financial inclusion
39
Country
Market responses
Niche
providers
Austria
Belgium
Denmark
Finland
Government intervention
Mainstream
providers
Voluntary
charters and
codes of
practices
+
+ (1997)
As
facilitator
+ (2003)
France
Post office.
+ (1992)
+ (2006)
Germany
Greece
Ireland
Savings banks.
+ (1995)
+
Italy
In the past
Post office &
savings banks
+
migrants
Savings banks.
+
migrants
+ (2003)
+ (1984; 1998;
2001; 2006)
+
Luxemburg
Netherlands
Portugal
Spain
As
legislator
+ (2000 ?)
Sweden
United Kingdom
Post office
+ (2001; 2003;
2005)
+
+
This overview of responses to tackle financial exclusion is intended to offer a common
framework both for the various country experiences which will be studied more in depth
in the country reports and for the working papers dealing with special issues.
To facilitate comparison of the experiences across countries, it would help greatly if the
country reports adopted the categories and the concepts presented in this overview.
Where this is not possible it would be helpful to have a clear explanation of why this is
not appropriate for the context of a country. In all cases, descriptions of initiatives taken
within countries should adopt a critical approach. This would include a discussion of
their effectiveness and progress made against the agreed objectives (including how this
was assessed) and highlighting what new priorities and direction for policy have been
suggested as a result. In adopting this critical approach, reports should consider the
situation from the standpoint of organisations concerned with demand (consumer
associations, social organisations etc) and those related to supply (banking industry and
other mainstream financial providers) as well as that of the regulators (with reference to
the stability and integrity of the financial system on one hand and antitrust and fair trade
on the other). Economic consequences (i.e. an approach to cost-benefit analysis) should
be carefully considered.
40
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Annex I – Types of financial exclusion
Terms
Definitions
Transactions
Financial services using cash
or other payment means
(cheques, cards, electronic
means) to make or receive
payments, domestic or
international.
Therefore deposits are held
mainly for transactions
purposes.
Savings
Credit/Loan
Insurance
(risk
transformation
services)
Additional information
At a basic level, obtaining cash for
personal use, withdrawing cash,
converting cheques or vouchers to
cash, paying bills through direct
debit. Regular receipt of funds
(income, benefit) Making
remittances for migrants.
At a more complex level, making
or sending domestic payments
through the financial network,
receiving domestic funds through
the financial network.
At a higher level, sending and
receiving cross border payments
(different from remittances).
Safeguarding wealth and
Primary purpose is to safeguard
accumulating wealth for
wealth. High degree of liquidity
future use
required in case funds are needed
immediately and high risk
aversion.
At a more complex level, earn a
return on savings and increase
their amount, for future use. (may
involve some reduction in
immediate liquidity, in exchange
for a higher return: I suggest not to
include this case.
At a higher level, try to increase
returns on savings through
investment vehicles with some
trade off in terms of liquidity/
riskiness
Obtaining funds from a third Basic credit services would be
party with a promise of
short term loans for small
repayment of principal, and amounts.
in most cases with interest
More complex services would be
and arrangement charges in for longer duration and larger
exchange for use of the
sums.
money
Lines of credit / overdraft facilities
which make funds available on a
more flexible basis are more
complex than basic loans.
Payment of premium for risk The primary purpose of the service
of an event happening, where is to manage risk around a specific
payout is made if the event event that may occur (car /vehicle
occurs.
accident, fire, theft, damage, loss
of crop?, business failure) or will
occur (death, illness).
47
Relevant question
mark
Do the payment means
imply a fiduciary
relationship? (i.e.
overdrafts?)
Are there new
technological
/contractual solution
that facilitate fiduciary
payments by people
with poor
creditworthiness?
Is the fiscal treatment
an important element
in determining
convenience
/incentives?
Are overdraft facilities
considered
essential in a banking
relationship for some
(what segments?) of
customers?
If yes, how to mach
demand and offer
side?
Are there new
products targeted to
riskier people?
Annex II - A synthesis of the main experiences of responses
Voluntary charters and codes of practice
Country
Year of first Name
Main provisions
introduction
Charter on bank services
It was intended to enhance the “right-to-the
1992
FRANCE
established by the Comité
Consultatif and signed by the
Bankers’ Association
account” of the Law and integrate it on a voluntary
basis, but it was considered too vague and
ineffective. The banking services included in the
basic banking offer were not based on the principle
of free service. The application of this charter has
been challenged by consumer associations.
BELGIUM
1997
Charter of the Association
Belge des Banques for a basic
banking service
According to this Charter, the banks that subscribed
committed themselves to provide basic bank
services to everyone with a legal domicile in
Belgium. This service was then made available to
physical individuals who could then access a current
account which offered three basic functions: i)
monetary, manual and electronic payments, ii)
deposits and withdrawals, iii) account statements
GERMANY
1995
Charter of the Central Credit
Committee (a lobby
organisation of all German
banking associations
“Girokonto fur Jedermann”
UK
2005 and
Banking Code
(and related monitoring
This code of conduct is a recommendation
suggesting to all associated banks to provide a
current account to anyone without looking at the
income situation. This voluntary code of conduct
also names circumstances which make it
unreasonable for a bank to offer a current account. If
a bank wrongly refuses to open a current account,
the concerned customer can file a complaint to one
of the complaint offices of the four major banking
associations.
The issue of basic bank accounts is discussed (in the
current version issued in March 2005) in the sections
Other notes and criticism
For people on low incomes, it
included the possibility of an
ATM card as well as a free access
to the ATM dispenser of the bank,
the possibility of long-distance
payment, the availability of
relevés d’identité bancaire (RIB)
or banking identity statements,
and a system of cheques whose
number could be limited with the
customer’s agreement
While the relevant consumers’
associations approved this
formula, they were also critical
because the banks scarcely applied
it to marginal clients at all, even
though they had originally
committed themselves to doing so.
There has also been criticism
because the evidence shows that
accounts have tended to be opened
not by people at risk of financial
exclusion, but rather by people
taking advantage of a product that
is cheaper even though its
functions are more limited.
This criticism of self-regulation
paved the way for the Law of 24
March 2003
previous
editions
ITALY
initiatives)
Patti Chiari Charter
Standard Basic Account
about key commitments and the provision of support
in choosing the products and services which best suit
the customer’s needs. In the first section, though no
specific commitment is set out to serve customers
with basic knowledge and needs, the first two
paragraphs of the section are clearly designed to
meet the requirements of this market segment.
In the same section, more explicit reference to basic
accounts and their relation to needs is made.
Paragraph 3.1. reads: “We will assess whether your
needs are suited to a basic bank account (if we offer
one) and if they are we will offer you this product”;
also, “We will offer you a basic bank account if you
specifically ask, and meet the qualifying conditions
for one”. The following paragraph, 3.2. reads:
“Where we offer basic bank accounts, we will tell
you if they can be used at post office”.
Furthermore, a clear definition of a basic bank
account is provided in the Glossary:
“A basic bank account will normally have the
following features:
- Employers can pay income directly into the
account.
- The Government can pay pensions, tax credits
and benefits directly into the account.
- Cheques and cash can be paid into the account.
- Bills can be paid by direct debit, by transferring
money to another account or by payment to a
linked account.
- Cash can be withdrawn at cash machines.
- There is no overdraft facility.
- The last penny in the account can be
withdrawn”.
It should be noted that the guide for subscribers to
the Banking Code specifies that, if the customer has
a history of fraud or unpaid debt, a subscriber is not
bound to open an account, and also that “if the
customer already holds a suitable account with the
bank, a subscriber is not bound to open a bank
account”.
Under the basic banking service initiative, all
participating banks are required to offer a standard
basic account (i.e., an account which has the same
content across all banks), but each bank is also free
to apply its own pricing policy.
49
Participation is on a voluntary
basis: the Patti Chiari charter is
made up of single initiatives (i.e.,
it is not a ‘package’) and each
bank is free to choose which
Italian basic bank accounts provide the following
standard services: i) crediting of wages or pensions;
ii) cash and cheque deposit; iii) cash withdrawal
directly at the teller’s; iv) payment by bank transfer,
both from and into the account; v) bill payment and
other regular, recurrent payments; vi) use of a cash
card to withdraw cash from all the issuing bank’s
ATM facilities, or alternatively, a prepaid stored
value card; vii) investment of savings through
regular payments; viii) home and/or phone banking
facilities to obtain information and manage
transactions; ix) regular account statements.
The basic banking service does not include a
chequebook, credit card, any kind of loan or credit
or the purchase of bonds.
In compliance with antitrust regulations, each bank
sets its own prices independently, having regard to
its own sales policies and operational constraints.
Consistent with the spirit of the initiative, charges
should ideally be kept to a minimum and be divided
into a flat rate for a fixed number of transactions,
and individual commissions for each additional
transaction above that ceiling.
Overall, the range of charges and services available
is wide and varied though, as already mentioned,
stamp duties do have a particularly heavy impact on
charges. Moreover, no statistical data is available on
the actual spread of basic banking services;
similarly, no ‘high visibility’ mass advertising
campaign about basic accounts appears to have been
launched in the Italian media, although such
campaigns would be consistent with the aim of
targeting customers with basic financial needs.
50
initiatives it will take part in.
Government intervention (as facilitator)
Country
Name of the Initiative
Main provisions
Promotion of the Universal One important spur to account ownership amongst those without accounts was provided
UK
Bank Offer and Post Office
Account
Financial Inclusion
Strategy
Financial Inclusion
Taskforce
Financial Inclusion Fund
by the Treasury’s decision to pay all welfare subsidies, allowances, benefits and state
pensions direct to beneficiaries’ accounts. Since the Spring of 2003, this system has been
progressively automated and has been closely tied to the Universal Bank, which in turn
was the result of the joint action of three partners: the Treasury, the Post Office and the
banking system. The Universal Bank is a scheme – jointly funded by the public and
private sectors – by which any holder of a basic account with a major bank can use local
post offices, (which may be closer to his/her home or workplace) for routine bank
transactions such as withdrawals and cheque cashing, at no additional cost. Furthermore,
the postal system has itself developed a special kind of basic account offering an
intentionally limited range of services, at a lower cost. This product, called Post Office
Card Account, consists in a card-based account to which only state benefits, subsidies
and pensions, and no other kind of income, can be paid. In a nutshell, it is a kind of
electronic purse or prepaid stored value card, and has been popular with pensioners. In
all, 17 banks, including all major credit institutions, offer banking accounts that can be
used at post offices.
The Government set out its strategy to tackle financial exclusion in ‘Promoting financial
inclusion’, published alongside the 2004 Pre-Budget Report. The report sets out a range
of measures – in three priority areas – access to banking, access to affordable credit, and
access to free face to-face money advice. In order to guarantee the practical application
of the commitment is was decided to establish a Financial Inclusion Task Force and a
Financial Inclusion Fun
The Financial Inclusion Taskforce was formally launched on 21st February 2005 and
will monitor progress on the objectives the Government has set out and will make
recommendations on what more needs to be done.
It has a budget of £3 million to pursue their objectives, including improving the
knowledge base of financial exclusion issues.
The Task Force works closely with consumer and bankers’ organisations to identify
issues to be put on the policy agenda
The Financial Inclusion Fund of £120 million over three years was announced in the
2004 Pre-Budget Report in December 2004. The Fund will support initiatives to tackle
financial exclusion:
£45million is being used to support an increase in provision of face-to-face money
advice, and is being administered by the Department of Trade and Industry. Funding
commenced in April 2006 and more than 3500 clients advised by end of October 2006.
£36 million is being used for a Growth Fund to enhance the coverage, capacity and
sustainability of third sector lenders. This fund is being administered by the Department
of Work and Pensions.
£10 million has been made available for the administration of the Growth Fund and a
scheme to enable third sector lenders to apply for repayment by deduction from benefit
where normal repayment arrangements have broken down.
£6 million is being used by the Legal Services Commission to pilot mechanisms of
51
money advice outreach aimed at those who do not normally present themselves to debt
advisers
FRANCE
GERMANY
National Council to
combat exclusion
Financial Services
Consultative Committee
Settled in September 2005
The agenda for the Action Plan launched in 2004 included four main objectives:
1. the right of access to an account for all;
2. access for all to a bank card and modern payment methods;
3. targeted communication with people who are not entitled to hold a cheque account;
4. the widespread acceptance of “modern payment methods” by public services in the
local area.
As to the first issue the Committee gave a boost to the subscription of a letter of
commitment to activate a new procedure to designate a banking establishment – that
gives the right to an account to the people to whom this right has been denied. Now, any
bank that has refused to open such an account has to undertake formalities with the
Banque de France and there is a stringent timescale for handling the procedure both by
the bank as well as by the Banque de France. The client should be informed of the
banking establishment nominated, within two days.
Besides the subscription to the letter of commitment to activate the new procedure, the
engagement includes training initiatives for the counter’s staff, communication
campaigns organised by the Ministry for Economy addressed to the population,
monitoring of the operation of the procedure.
As to the second issue the Committee hurried up the banks to introduce these new
instruments and procedures and the public sector encouraged the spread of these
payment mechanisms by accepting them in the local area and providing financial
support.
The German Federal Government is committed to improve access for low-income groups
of people to basic banking services, and is currently working together with the banking
industry to access and improve the existing situation.
52
Government intervention (as legislator)
Country
References
Main provisions
BELGIUM
Law 24 March 2004
(Law introducing a basic
banking account))
Further details
Further provisions
Elements to be analysed in
order to identifying the Costs
and Benefits
The law obliges all banks to provide a
basic banking account to any individual
who does not already have one, or a
yearly fee of maximum EUR 12.
The basic banking service covers the
following operations:
 opening, managing and closing the
account:;
 money transfers and payments
(manual and automatic);
 standing orders and domiciliation;
 money deposits;
 money withdrawals (manual and
automatic);
 account statements
- According to the “pay or play
model” a compensation fund
managed by the Belgian Central
Bank and supplied with the bank
system’s contributions, reimburses
banks that open and manage a larger
number of accounts than their own
economic importance in the Belgian
market would justify.
- Sanctions are imposed on those
banks that do not respect the rule.
- The scheme is monitored by the
National Bank of Belgium that
collects statistics on the number of
basic bank account opened.
What is the assessment of the
application of the law by: Central
bank, Consumers’ Association and
the Banking Industry?
The law introduced the right to a basic
bank account
The right concerned a deposit
account in which all transaction took
place in cash
The law limited the conditions under
which banks limit the opening of a
bank deposit account to basic banking
services
It extended the “right-to-the-account”
procedure to all physical and juridical
people that are established in France.
It set the principle that in cases where
the “right-to-an account” has been
invoked the pricing of services
offered should be fixed by a decree.
It defined the range of services
considered to be basic services.
The basic services included are: i)
account opening, maintenance and
closure; ii) one change of place of
residence per year; iii) issuing, upon
request, of bank or postal identity
document; iv) receiving bank or
postal transfers; v) monthly statement
of all transactions carried out on the
account, sent to account holder’s
address; vi) cash transactions; vii)
collection of cheques or bank and
See also Charter for a
minimum banking
service
FRANCE
Law n° 84-46 of 24
January 1984 (the
Banking Law)
Law n° 98-657 of 29
July 1998
Law n° 99-532 of 25
June 1999 on saving
and financial security
See also
CHARTER for basic
bank services (1992)
53
The supervisory body is entitled to
intervene to enforce the
implementation of the right.
However, evidence shows that
appeals have been limited in number
although the banks have applied
severe conditions to other services
related to these accounts. In
particular so-called “payment
incidents” have been penalised. To
combat the extremes of this practice,
a further decree (see below) has
established a limit to the charges that
Law n° 2001-1168 of
11 December
Decree n° 2006-384
of 27 March 2006 on
basic banking services
FINLAND
Credit Institutions Act
(31.1.2003), Section
50a
PORTUGAL Decree n°7-C/2000
March 2000
The law introduced measures to combat
the common practice of imposing
severe penalties for payment incidents,
that occurred mostly to people on low
incomes, with low cultural level and
poor socio-economic conditions
The law set the mandatory obligation
to all banks to offer alternative
payment mechanism to persons who
are not entitled to a chequebook or a
credit card..
It states that a regular bank account and
the means necessary to use such
account can only be refused if there are
weighty grounds for the refusal.
Banks’ compliance with the decree is
voluntary, but most of them adhere.
54
postal money order; viii) deposit or
withdrawal of cash at the counters of
the bank where the account has been
opened; ix) payments with
withdrawal and use of inter-bank
payment facilities or bank or postal
money order; x) facilities for
accessing details of balances at a
distance; xi) a payment card
requiring systematic authorisation (if
provided) and, if not, a withdrawal
card for weekly withdrawals at
automatic teller machines of the bank
where the account has been opened;
xii) two bank cheques per month or
equivalent payment mechanism
providing the same service.
.
can be imposed for modest bad
cheques.
Individuals who are not considered
sufficiently reliable and trusted to use
fiduciary payment instruments which
involve risk for the issuing bank can
now use alternative payment
mechanisms without resorting to
cash. These are payment cards with
systematic authorisation and other
alternative payment mechanisms
The grounds shall be linked to the
customer or his earlier behaviour or
to the fact that there is evidently no
actual need for a customer
relationship The customer has to be
notified of the grounds for the refusal
Is it possible to provide an
assessment of the result of the
diffusion and functioning of these
new payment instruments and
procedures?
Consumers associations state that
basic banking services are essential
services in modern society and that
this legislation is not enough.
Elements of the debate?
Is this updated?