The European Union has announced that it will recommend its member states to introduce a basic bank account to ensure that every adult who wants a bank account can have one. What sounds like good news is actually a step down from previous plans to introduce legislation that would introduce a universal service obligation for banks, meaning that every adult would have a right to a bank account, at least one without credit facilities. In other words, rather than enshrining this right account into law, the EU reckons a nudge approach will be enough. This is despite the fact that voluntary approaches in member states mostly fail to reduce the number of unbanked adults – and one such member state where it fails is the UK: despite progress being made through the voluntary commitment by banks, there are still 1.5m unbanked adults (opens as PDF) in the country. There are many reasons why the basic bank account will not go further in reducing the number of unbanked adults (the banking oligopoly; the mistrust many people have vis-a-vis banks; characteristics of the product itsef; the continued closure of branches, etcetc). One reason which is often overlooked, and which in my view may well lead to an increase in the number of the unbanked, is this: Most banks will refuse people with an undischarged bankruptcy a basic bank account, despite the fact that it doesn’t have credit facilities.
Banks are concerned about reputation – they don’t want to be associated with people with dodgy credit ratings. This hinders people’s recovery from a bankruptcy: not having a bank account comes with a huge premium attached as people are unable to take advantage of online payment, direct debits and other money-saving measures. It can stop people from having a job as cheques are phased out (and cheque cashing incurs a fee anyway), and employers are not too keen to find special arrangements for those who are unbanked. Given that individual insolvencies are at an all time high at the moment (the trend is thankfully falling, but in the first quarter of this year, there were over 12500 bankruptcies), this may well lead to an increase in the number of unbanked people.
The introduction of the basic bank account was a voluntary measure by UK banks to stem of regulation, and given the continued problem around product design and accessibility of BBAs, I think there is little commitment past lip-service from banks to actually cater to their client on the lower end of the income scale.
The only way to get banks to provide bank accounts to ALL that want one is through a USO that compels banks to introduce a sound product that enables people to access their accounts and make good use of it. Also, if all banks have to open an account, then the reputational problem is removed. The EU’s retraction on its commitment is a big step backwards in this regard. It’s time for the Government to do something about it, and for the Financial Inclusion Taskforce to stop relying on voluntary commitment.