CONSUMERS’ ACCESS TO FINANCIAL SERVICES INQUIRY – CALL FOR EVIDENCE

RESPONSE BY THE FINANCE FOUNDATION[1]

Background

1. The Finance Foundation designed and published in-depth research in September 2016 on the needs of people in their 80s and 90s as they seek to stay in control of day to day financial transactions. This informed submissions to the Financial Conduct Authority’s call for evidence on the ageing population and the consultation launched in 2016 by the House of Lords Select Committee on Financial Exclusion – the latter’s report in March 2017 quoted our work in-depth, as did the Griggs’ review of the Access to Banking Protocol, and subsequent newspaper coverage of these reports. This autumn we took part in a stakeholder workshop and submitted detailed evidence to the Access to Cash Review and were invited to the CMA roundtable consultation on vulnerable consumers.

2. Our work remains one of the most detailed recent investigations of this very specific group of the older old, who we argue are often overlooked by studies that take retirement age, age 65 or a similar cut off to research the needs of older people, masking the qualitatively different experience of those who are 80 or older. Our research report “When I’m 84” – Locking the door on the older old: the challenge facing British Banks can be accessed here, with the key findings also summarised on our website.

How the closure of bank branches increases the risk of financial exclusion of older consumers

3. In our report we use one of the conventionally accepted definitions of financial exclusion, namely, the inability, difficulty or reluctance to access mainstream financial services.[2] We identify those in later old age (aged 80 and over) as a group that is now at high risk of financial exclusion, arguing that ‘this calls into question the accepted wisdom that financial exclusion is primarily about the unbanked or those with very poor financial capabilities. The unique physical and cognitive challenges faced by the older old and their clear requirement for a more traditional way of managing financial transactions now also puts this growing section of the population at risk of financial exclusion as more and more bank branches are being closed down in response to the increased automation of everyday banking tasks’.[3]

Evidence to support the continuing need for access to physical banking by older consumers

4. Our research on older people (80+) found both a strong preference for cash and for face to face interaction as part of their day to day banking as well as a dislike and disinclination to use technology for a whole variety of reasons, including physical and cognitive challenges and fears over security, theft and mistakes.

The very old value the immediacy, familiarity and tangibility of cash

Older people are highly dependent on cash for daily purposes and for paying people who do work or shopping for them. Our research showed that, in contrast to younger people’s behaviours, half of all older people age 80+ draw out cash at least weekly and 80% at least monthly.[4] While some things are changing around person to person transactions – for instance it is increasingly possible to pay tradesmen via electronic devices brought to the home which just require a card to be inserted -  this is not the case for payments to neighbours for shopping or other errands which feature prominently in older people’s lives – a cashless transfer in this case would require the use of internet or banking apps that so many older people do not access. In contrast to tradesman, cleaners and carers may also often require payment in cash, not as a tax avoidance measure, but because they don’t have the resources to use card machines to take payment and, in some cases, may themselves be unbanked. 

Similarly, while older people can now much more easily buy their cup of tea or newspaper through a low value contactless payment with a card, many still prefer to use cash for these transactions at least in part so that they can keep track of where their money is going. They also place a high valuation on continuing to be able to make gifts, put money in charity boxes, pay for parking and pay local societies etc. in cash. Taken together with person to person payments, these transactions can amount to a significant requirement for regular cash.

Our research also showed that cash is used as the main way of budgeting and keeping track of money by around half of those responding. This is a really important part of managing day to day financial matters and for older people a very significant reason for preferring cash – in focus groups older people typically say when asked about this that they value being able to put their budgeted spending money in their wallet or purse so that they can see how much has been spent and how much they have left. This is perhaps of increasing importance as the declining frequency of and access to paper statements makes it that bit harder for those who are not using internet or mobile banking to keep on top of their spending. Those in this position may know how much is going out in regular direct debits for bills etc., but for the rest of their expenditure what they are telling us is that they want to maintain control through physical oversight of their money and the security that comes from dealing in money – notes and coins - that are tangible.

Older people are fearful of technology and worried about privacy, security and fraud, as well as finding it daunting and difficult to use

In our survey we found that 87% of the over 80s never use the internet for financial transactions, and those who do use it are generally shopping - only 9% are banking online. Reasons for non-use include not having the internet (75%) and a range of hypothetical worries over fraud, making mistakes and an overriding preference for interacting with people.[5]

   Reasons for not using the internet for financial matters

One of the most salient points to come out of these findings on older people’s approach to technology is their concern about fraud and error, which is one of the many drivers for them wanting to continue with cash-based and non-digital solutions. While this may seem partly a fear of the unknown, it also perhaps has well-founded roots. It is well-known that older people are deliberately targeted by scammers, partly because in general they hold more in savings than other groups, but also because many are less aware of and skilled at how to protect themselves when using technology, and may also be more vulnerable due to the subtle cognitive changes that come with age. These are serious issues to be considered when weighing up the importance of supporting older people’s expressed preference to continue using physical banking and cash rather than digital technology.

Is this need for physical banking just a short term problem?

5. Many in the financial and policy world expect that as younger cohorts age, they will become increasingly able to use technology, and there are also many policy initiatives in train to encourage greater use of digital banking among today’s older customers. However set alongside this one has to consider that as life expectancy rises we will in effect have a group of older people who are not just living longer than previous generations, but who are also living for many years with a limiting illness or disability – estimates are that men will have around eight and women around ten years of disability at the end of their lives.[6] As a recent Government Office for Science report succinctly puts it, we can expect to see ‘a relative shift away from acute illness towards chronic conditions, multi-morbidities, cognitive impairments and long-term frailty’.[7] Moreover, the number of significant health conditions an older person is likely to have has been demonstrated to increase as they get older: for those aged 80-84 it is most common to have two conditions, by the age of 90-94 – one of the key growth areas demographically – five is most common.[8]

6. All of these challenges mean that the sector cannot necessarily rely on younger cohorts migrating to or maintaining skills for digital banking as they age rather having a preference for cash, the medium with which they are familiar or, in the case of those with limiting disability, can most easily manage through the physical and cognitive challenges of ageing. The fact that people currently in their 50s, 60s and 70s might be adept at using technology for managing their finances, or with a little extra support could become adept, does not necessarily mean that this will continue into later life in all cases.

7. Some research is optimistic on this point, identifying the over 75s as the fastest growing group of internet users, with the large majority of those 65-74 now considered regular users. However, as our research with the older old has shown, internet use is very different from internet banking. More than a third of the over 80s do use the internet for social or information purposes but our research found that fewer than 10% are engaged in internet banking.[9] Recent data from Ofcom also show that 80% of those aged 75+ who are not currently using the internet say that there is nothing that would prompt them to change this in the next 12 months.[10] And looking into the future, how many of those in their 80s and 90s who previously used the internet will at some point stop doing so? All of these issues are really important in the light of the expected rapid increase in the very oldest age groups. It is salutary to remember that the one million people who will reach the age of 90 in the next fifteen years are already at least 75.

8. We argue that policy needs to consider that as people enter the oldest age groups they may at a certain point become less physically capable of banking tasks that require them to use technology. If you are suffering from sight loss due to macular degeneration, are semi-paralysed by a stroke or suffering the side effects of chemotherapy, all very common conditions for those in later old age, then using self-operated technology – whether ATM, phone or computer – may prove too much of a challenge. And that is before considering whether continued rapid changes in technological interfaces will be something that the older old are able to deal with as cognitive faculties and confidence in doing new things decline and as the gap since they were last in work and most able to assimilate technological changes starts to stretch into decades.

9. To conclude: given all the issues that face older people in particular, we think there is a clear case for accepting that there will be a demand for cash and for physical banking services that will continue for many years to come, which is driven by real physical and cognitive challenges and risks. If this is not met, then there will be a clear risk of rising and highly debilitating financial exclusion of the oldest in our society.

How can people’s need for cash and physical banking best be met in the future?

10. Meeting the need for cash and other physical banking services in the future requires an effective infrastructure for those who require it. Until relatively recently the bank branch network and the ubiquity of free to use ATMS adequately fulfilled this function. The rapidly contracting branch bank network and the prospect of future reductions in the number of ATMs (let alone free to use ATMs) is obviously changing the landscape. Even quite significant-size market towns are now finding that the last bank in town is leaving.

11. The current agreement between banks and the Post Office network, with its wide reach of outlets, does offer a potential solution although it has limitations for some banking functions such as accessing savings accounts or setting up new direct debits etc. However, if this is to be the future infrastructure solution then a number of changes/improvements may be required. The first of these should be to bring the continued provision of these services within some sort of regulatory framework rather than relying on voluntary agreements between banks and the Post Office being periodically renegotiated and renewed.

12. There is also a need to consider the future design of Post Office services and whether they will be suitable for the large numbers of older people requiring access to cash and other functions. Older people are clear that they strongly prefer face to face interaction rather than using machines, many find standing in queues for any length of time very difficult, and they also told us that they needed privacy and space to count and put away their money in a way that they felt safe with. These are real concerns that need to be reflected in service design in order to deliver an infrastructure that is fit for purpose.

13. Finally, there is a need to consider whether a different type of infrastructure could be developed for delivering cash directly to people’s homes in the future, rather than providing facilities that they have to travel or be taken to. For more routine needs, such as getting cash to housebound customers, it really should not be that difficult to design systems to deliver cash directly to them. This currently happens when people order foreign currency to be delivered by courier or often simply through the postal system – now may be the time to think about whether this could be extended in a safe and cost-effective manner to ordinary cash withdrawals. Other alternatives might also be explored. For instance, home shopping or delivery services could perhaps offer secure cash delivery as well, so that when an older person receives their groceries or meal services on the doorstep (perhaps ordered online by someone else) they also get a sealed envelope with their cash. The possibilities for this sort of service are multiplying all the time as Amazon and others intensify their courier services and other technologies for home or local secure locker delivery become mainstream.

Do we need additional regulation or central co-ordination to maintain access to financial services?

14. Given that the pressures on the financial services sector are towards an accelerating reduction in the physical banking infrastructure, then some further regulation or co-ordination will almost certainly be required if this access it to be protected. This could take a variety of forms.

Regulatory Universal Service Obligation (USO)

15. The introduction of a regulatory Universal Service Obligation is one way forward. The FCA noted in a 2016 paper on access that:

‘Without access to financial services consumers can find themselves shut out of modern life’. [11]

16. If we accept that this is the case, then it raises the issue of whether access to cash payments systems and other essential financial services would meet the criteria of an “essential service” that should therefore be provided under a Universal Service Obligation – in effect requiring businesses to ensure that they were providing services that meet the needs of all consumers, including those in need of special help.[12] USOs already apply in many utilities, and this is being extended to cover high speed broadband provision. It might be argued that the time has come to push for similar treatment for citizens’ access to cash and payments systems.

17. Moreover, a universal service obligation on the banks to provide continuing access to cash for those who require it and/or who can no longer access physical facilities would act as a strong incentive to start developing innovative solutions, including ways of managing cash delivery to private addresses in the same way that foreign currency is currently delivered. This might extend to the development of secure courier and home delivery services or even the equivalent of Amazon locker local pick-ups.

Statutory duty on FCA to promote financial inclusion

18. There are other regulatory options that might be considered. It is external market changes in financial services that are now potentially pushing more people, especially those in older age, towards financial exclusion because they are finding it increasing difficult to manage their finances and retain access to cash. While the FCA clearly has some leverage to steer industry towards meeting the needs of older consumers and to advocate on their behalf, it does not have any specific objective or duty around consumers’ access to financial services or financial inclusion more generally. There may be a case for this to be reviewed so that the FCA is given a more robust role that potentially includes a statutory duty to promote financial inclusion as one of its key objectives, as has previously been proposed by the Financial Inclusion Commission[13] and more recently by the House of Lords Select Committee on Financial Exclusion.[14]

19. The House of Lords Select Committee also proposes a series of other measures to strengthen the framework for securing financial inclusion including: appointing a clearly designated Minister for Financial Inclusion, setting a clear strategy for improving financial inclusion and providing an annual report on progress made and amending the Financial Services and Markets Act 2000 to introduce a requirement for the FCA to make rules setting out a reasonable duty of care for financial services providers to exercise towards their consumers.

Strengthening and formalising current infrastructure

20. As outlined above, the Post Office network could potentially be a viable means of supporting access to cash into the future. As already set out, there needs to be a stronger oversight of this provision, making it into a permanent and properly funded solution that is not subject to continual renegotiation and cannot be subject to free rider problems or closure and which provides adequate incentives to individual post office outlets to provide a cash service.

21. There must also now be recognition that the Access to Banking Standard, while it may have small impacts, is not an adequate solution and does nothing to halt the closure of local bank branches, because it is not designed to do so. Nor is there currently any mechanism that is co-ordinating the process of protecting access to free to use ATMs or indeed to any ATM, free or not. This is especially problematic for those in rural areas where there may be a perfect storm of withdrawal of local bank branches, loss of ATMs, ineffective or non-existent broadband for online solutions and lack of access to adequate transport to travel to places where facilities such as post offices are available.

Concluding remarks

22. The forces driving the contraction of the bank branch network are commercial decisions driven by the large-scale move to online and mobile banking and the resultant declining footfall in local branches. We must therefore address the issue of how (and why) we would pay for a continuing physical banking infrastructure to be available for a small part of the population with distinct needs, who might otherwise become financially excluded.

23. In principle there are an number ways that this might happen: direct transfer of the costs to those requiring access to cash and a physical banking presence;  collective responsibility placed upon all banking consumers to bear the costs as a cross-subsidy; direct regulation/levy on financial institutions to provide and hence in some way bear the costs of this access (or pass on to consumers); a more generalised public assumption of the costs involved.

24. In adjudicating between these options we should perhaps consider the cost of not supporting access to physical banking and cash. This is likely to be associated with a greater number of older people requiring residential care sooner than they might otherwise have needed it because they are no longer able to live independently. At the time of the 2011 Census 38% of 75–84 year olds were living alone, rising to 59% of those aged 85 or older.[15] This is consistent with estimates that just 16% of people aged 85 and over live in nursing homes or residential facilities.[16] Others in this age group may be living with their partner or with other family members, if they have reached a greater level of dependency. But with so few of those in later old age living in care homes, it is clear that access to appropriate means of managing day to day financial matters is of central importance.

25. If as a society we take the view that investing in services and support that enable older people to remain independent for longer is a valid preventative policy stance, then we need to apply that logic to this most crucial of activities. The ability to access money and have an effective means of paying for life’s necessities must be understood as being as fundamental as being able to continue with basic functions such as washing, dressing and eating. If we do not find a way of ensuring that older people can carry out routine financial transactions, even if it is as simple as paying a neighbour for shopping, then all the other support we provide to them with other daily tasks may not in the end be sufficient to enable them to continue to live independently. If this ends up pushing people into earlier than necessary institutional or other dependency it will be costly for them, costly for their relatives and costly for society as a whole.

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