The Current Account: The Latest Headlines From Across The Banking Sector - June

Welcome to The Current Account! We hope you enjoy our latest round-up of the top news stories from the industry.

Headlines from the banking sector this month

In this month’s edition, we’re focusing on the tightening regulations for Buy-Now-Pay-Later products, as well as the reduced access to cash.

Regulations tightening on BNPL products

• The BNPL sector is becoming more competitive as a number of banks enter the market. New players such as Apple Pay Later are also asserting their authority, and are set to launch in the US later this year 
• The cost-of-living crisis could see customers become more reliant on this form of consumer credit. Recent research from Barclays highlights their concern for a significant number of customers who are getting into unmanageable debt from BNPL schemes
• This seems to be hitting young people hardest, as research shows a high number of users need to take out different types of credit to pay off BNPL debt
• Banks are entering the sector with a more regulated perspective. Revolut are marketing their newly launched BNPL product as a responsible payment product, as it uses an approved credit limit that takes affordability into consideration
• This comes just as a new Buy-Now-Pay-Later regulation has been announced by the government, which will require lenders to ensure loans are affordable. Adverts also need to be clear, fair and avoid misleading potential users

PEN Point Of View:

One of the most important aspects of the lending process is ensuring that lending is right and affordable for customers. Affordability checks are being rolled out on a regular basis as BNPL products are launched by banks, and the incoming regulation will ensure this becomes the norm across all lenders. BNPL specialists have enjoyed success as they filled a gap in the market for interest-free and manageable credit, all within easy access. But organisations haven’t had regulatory hurdles to cross; nor have they had to deal in a more normalised credit and interest rate environment. Prioritising positive customer outcomes should be at the forefront of this implementation, and a customer’s ability to afford the loan in question is a key part of this. A lack of regulation could result in significant numbers of people spiralling into unmanageable debt.

Access to cash 

• Contactless card transactions have overtaken cash as the most popular way to make payments. But as the cost-of-living crisis continues, many households are turning to ‘cash stuffing’ to manage their outgoings. The thinking behind this decision lies in the idea that handling cash can make people more aware of their expenditure, especially when budgets are tight. However, many customers are seeing their access to cash disappear thanks to two primary factors:

1. Banks are continuing to close branches – 2021 saw a total of 730 branch closures. This trend has continued in 2022, with a further 536 branches either being closed or scheduled for closure this year. In addition to this, several banks, including HSBC and Santander, are reducing their opening hours
2. The number of ATMs across the UK has also fallen by 20% between July 2018 and February 2022

• Thanks to the shrinking branch and ATM network and the increase of self-serve points, the government has become concerned about the impact this will have to vulnerable customers, especially those in rural areas. The FCA are in the process of updating their original guidelines for banks on branch and ATM closures and will ask firms to undertake a more detailed impact assessment that changes to services have on customers. Nationwide has been quick to respond to this and has pledged that it will not leave any town or city that it is already based in without a branch until at least 2024

PEN Point Of View:

While banks are benefiting from the shift to digital, many customers, especially those with fairly simple financial requirements, are turning to cash during times of economic pressure. Customers who are handling cash feel that this gives them greater control over their outgoings. This behaviour isn’t a new phenomenon by any means, and the shrinking traditional mechanisms for accessing cash (branches and ATMs) is accentuating this pattern. The Government has rightly recognised the impact these shrinking mechanisms have on customers, including those who are vulnerable and we expect the authorities to consider steps to protect customers which will have operational implications for institutions.

And in case you missed it…

• In last month’s edition of The Current Account, we covered the topic of financial inclusion. This is a topic that has continued to spark debate now that the FCA has issued a CEO letter to lenders, highlighting the standards needed to support the cost-of-living crisis
• UK Infrastructure Bank has launched its first Strategic Plan, investing £22bn to tackle climate change and boost regional growth. This now makes clean energy the largest sector for investment
• The UK’s financial regulators will be able to test the resilience of big cloud providers like IBM, Google, Microsoft and Amazon and perform on-site inspections.

We’d love to hear your thoughts on this month's edition, connect with us and share on LinkedIn, and we look forward to continuing the series.

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