The impact of financial exclusion in Europe

By Alara Basul | 14 December 2016

In 2016, financial industry experts predicted that within the next decade, we could be heading towards a cashless society.

Relying cash leaves people vulnerable to loss or theft of money, and an inability to prepay or schedule payments ahead of time. They may then seek other unsuitable, payment methods, due to cash flow issues, which can lead to debt. Financial inclusion is the key for boosting prosperity and reducing poverty. 

On 12 December, MasterCard announced findings from new research that found that a third (33 per cent) of Europe’s 'financially excluded' are in full time employment, meaning they do not have access to credit, savings, or any form of banking payment technology. 35 per cent of the financially excluded in Europe are aged 18 to 34.

According to MasterCard's research, more than 138 million people across Europe do not have bank accounts, and are in essence financially cut off from society. A fifth (20 per cent) said they do not want a bank account at all, and a further 10 per cent said that they do not trust banks with their money.

“Digital inclusion has increased tremendously, nearly doubling in the last three years, whereas financial inclusion is not keeping pace with that,” says Steve Shirley, director of government at MasterCard Worldwide.

“Exclusion has a serious impact on a person’s quality of life, denying them basic benefits and choice including increased protection, convenience and access to the global economy. That the tools and technology are readily available to those who are in need of inclusion demonstrates that this is a solvable problem and one that partnership, education and innovation can easily solve.”

The Mastercard findings suggest that people are unable to grant access to banking accounts. According to Shirley, opening a bank account can be seen as an arduous process, as people have to provide evidence of who they are.

“In the UK, the Financial Inclusion Commission reported last year that if you’re not digitally included, it tends to be that you’re in that category of just about managing. It can cost you an additional £1,300 per annum, because you don’t get access to discounts for your utility bills, you can’t go online and buy something off the internet which may be cheaper than the high street, and you can’t pay ahead for your travels, such as trains and coaches. That’s quite a powerful number.” adds Steve.

“For many people the concept of exclusion is often seen as a developing markets problem but today’s report shows clearly that this is as much of a problem in the perceived developed markets of Europe as it is around the world,” says Ann Cairns, president international for MasterCard.

However, together with innovation and education, digital prepaid solutions and electronic payments can help to bridge the gap between technology and financial services.

The report also notes that in Europe, there has been a shift towards using technological platforms as a way of managing personal financing and banking. The use and access to technology via smartphones has significantly increased, from 29 per cent in 2013 to 49 per cent in 2016. Yet a quarter (27 per cent) of Europeans still find they are unable to access financial products and services, highlighting a definitive disconnect between those using technology and those accessing financial products and services.

“Governments need to take a lead here, by distributing welfare payments on prepaid cards,” Shirley says.

He continues: “Places like Britain and Scandinavia are culturally very comfortable with using electronic payments. Bank accounts have been around in the UK for a long time. Following the crash, confidence has eroded in some of the more traditional high street banks  which is why we’re seeing people turning to credit unions, looking to neo banks. They’re perhaps not offering the same traditional services, but more the electronic services that are appropriate for today's generation.”

Together with innovation and education, digital prepaid solutions and electronic payments can help to bridge the gap between technology and financial services.

“The UK is taking the lead in approaching financial inclusions through the local government. More than 100 councils are running prepaid programs to pay local welfare disbursements. They can see people’s payments patterns, and manage the exception.” This provides a care plan which gives citizens greater insight to their spending,” Shirley continues.

Cairns adds: “While the findings on financial inclusion are troubling, given the sharp increase in access to technology like smartphones, it is clear that the road to financial inclusion is a digital one.

“By tapping into the rapid rise in technology, we can develop new solutions to ensure everyone in Europe has access to the financial system. This will directly improve millions of lives and benefit us all by encouraging a fairer, more equal society.”

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development