Access to financial services has become a necessary condition for participating in economic and social life. Yet, in most countries, many people encounter difficulties accessing or using appropriate financial services in the mainstream market. Financial exclusion is deeply linked to social exclusion. Poor people or socially excluded people are generally denied access to financial services and the lack of access to financial services reinforces the risk of social exclusion.
How many people are affected?
In the EU-15 countries, two adults 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.
In contrast, one third of people in the new Member States are financially excluded, more than half have no transaction account, a similar proportion have no savings and almost three quarters have no immediate access to revolving credit.
Who is most likely to be financially excluded?
People living on low incomes are primarily affected, and consequently those who are unemployed, lone parents caring full-time for children and people who are unable to work through sickness or disability. Migrants are also particularly affected.
Living in a deprived area increases the likelihood of being financially excluded as does living in a rural area in new member states. This reflects the scarcity of financial service provision in such communities.
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.
What are the causes of financial exclusion?
Societal trends such as ageing combined with the technological gap serve to increase financial exclusion.
In addition, many factors are related to supply and demand for services: banks refusing to open full transaction accounts for certain groups of people; lack of accessibility; bad service delivery; high costs of services. In addition, some people mistrust financial institutions or fear a loss of financial control and are therefore deterred from using a bank account.
Financial exclusion is closely linked to social exclusion. Indeed, access to and use of basic financial services such as a bank account and simple transactions are key to social integration; for example in access to work.
To what extent is financial exclusion an issue at national level?
In half of the countries studied (AT, BE, DE, FR, IE, IT and UK), a national debate on financial exclusion has been led by various players (national governments, consumer organisations, academics...) and governments have responded with different measures.
But in the other half, there has so far been only limited debate about financial exclusion, or none at all. In only three of them, can this situation be justified by either high (ES) or very high (NL and NO) levels of financial inclusion.
The four new Member States covered by the study (BG, LT, PL and SK) all reported a lack of any national debate on financial exclusion. These countries are currently evolving from a situation where many people are not served by financial service providers (minimising the adverse consequences of not being served) to a more 'financialised' society, where the need to tackle the problem of financial exclusion will become more and more acute.
How can we tackle the problem?
Financial services providers have adopted a wide range of responses in the fourteen countries studied, to address both problems of access and use.
* Mainstream commercial providers have developed simple, low cost transaction bank accounts to meet the needs of people on low and unstable incomes (BE, DE, IT and UK) or implemented partnerships to assist other types of providers in setting up their own banking services (BE, UK and NL).
* Social-oriented providers, including savings banks, post offices and other mutual co-operative providers, have been even more active than private banks in developing new products and alternative financial services (co-operative and savings banks in DE, post offices in IE, IT and UK). In some cases, they have been the sole providers of these services in their country (savings banks in AT and ES, postal bank in BE, FR and PL).
* The banking sector has developed voluntary charters and codes of practices to provide for “basic” bank accounts in six out of the fourteen countries studied.
In addition, governments have acted as a facilitator to financial inclusion. They have encouraged banks to offer basic bank accounts (in BE, DE and UK as a first step) and promote easier access to basic financial services. In some cases, they directly provide financial services for low income people or education and training to people reluctant to use financial services.
What are the main policy recommendations?
First, governments should develop clear indicators of the extent of the financial exclusion problem and be able to assess the efficiency of measures implemented and their impact on financial exclusion.
Second, the situations and needs of vulnerable groups should be fully taken into account in policies to ensure financial capability of banking institutions, consumer protection and transparent relationships between financial service providers and customers.
Finally, over-indebted people should be guaranteed access to basic bank services; financial education and advice should be developed; and financial institutions' social responsibility should be encouraged and monitored.
