The Payments Association has highlighted the urgent need to improve access to affordable financial services in the UK, outlining the potential of community finance options like credit unions.
Its latest whitepaper, Redefining Community Finance: Unlocking Pathways to Financial Inclusion, identifies significant barriers such as negative perceptions, limited resources and stringent regulations that hinder the growth of these community finance institutions.
Key findings suggest that redefining the ‘brand’ of community finance to distinguish between ‘credit’ and ‘debt’ and broadening the definition of ‘community’ beyond geographic constraints could help attract investment and reach more consumers.
“Financial inclusion remains critically important, with a staggering number of people in this country still struggling to access financial services,” warns Tony Craddock, director general of The Payments Association. “Community finance providers, such as credit unions and community development finance institutions, play a vital role in bridging this gap.
“However, the sector faces significant barriers to growth, including negative perceptions, limited resources, and regulatory burdens. We hope policymakers realise the enormity of this issue and take our recommendations on board.”
Inside the whitepaper
The whitepaper features commentary from experts and changemakers from across the payments sector, including academics, credit unions, banks, industry bodies and consumer champions.
It also proposes key policy recommendations to serve as a “tool to drive long-term, meaningful reform, aiming to unlock access to financial services for underserved individuals and boost inclusion nationwide”.
Recommendations for unlocking the potential of community finance include:
- Creating a ‘sandbox’ for community lenders and tech providers to collaborate, and learning from successful models like US Credit Union Service Organisations (CUSOs)
- A fairer regulatory framework that recognises the unique mission of community finance organisations, combined with business rate relief and a trust and quality kitemark system
- To engage mainstream financial institutions, consider targeted investments, levies, mentorship programmes and improved signposting
- Collaboration between community finance providers and regulators is essential to address the common bond challenge and share successful solutions
Neil Harris, chair of The Payments Association’s advisory board, also added: “Community finance organisations are doing enormously important work serving the underserved, but all too often they lack the resources and support to effectively carry out this mission at the scale that is needed.
“It is clear what a powerful tool for financial inclusion that community finance can be, but it needs a collective effort from government, policymakers, the finance industry, and technology providers to support this sector to thrive.”
