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

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

Headlines from the banking sector this month

In this edition of The Current Account, we focus on how banks are tackling financial inclusion, and the financial risks organisations face because of climate change.

Tackling Financial Inclusion

• The Cost of Living Crisis has pushed financial inclusion high up on the agenda for those who provide financial services; the regulators that monitor them; and the customers they serve. This broadens concerns around financial inclusion to include not just whether people have access to necessary financial services, but also the income available to households.
• We can already see responses in the market to this broader concern. A London-based fintech lender, Creditspring, has raised a total of £70 million to support their mission to help people across the UK build their financial stability. This funding will be used to support more members to avoid high-cost, unscrupulous lenders and manage their finances through the cost of living crisis.
• The war in Ukraine has also driven action around financial inclusion in the more traditional sense, with the likes of NatWest, RBS, Lloyds and others helping Ukrainian refugees physically access banking services. HSBC also provide this service, coming on the back of their successful partnership with Shelter, to provide bank accounts for homeless people.
• However, there are still huge delays in issuing biometric permits to refugees which means many are struggling to find the proof of identity needed to open a bank account. Also, the evidence banks accept differs, where some allow alternatives but many won’t.
• Regulators are demanding more from financial services providers. The European Banking Authority are asking banks to lessen anti-money-laundering rules for Ukrainian refugees to allow for easier access to services, and we expect UK regulators to quickly follow suit. Also the FCA's research programme on the fair treatment of vulnerable customers, and upcoming Consumer Duty regulations, will also help drive financial inclusion in the UK. These regulations will ask banks, building societies and the like to now evidence, more than ever before, that access to their services is fair; the information and advice they provide to customers across different contexts is easy to understand; and customers aren't being pressed towards inappropriate products, services or additional charges.

PEN Point Of View:

Our society continues to battle issues around inclusion, and recent events confirm there is still a lot of work to be done. Creating products, services and customer experiences that are inclusive is vital for organisations that want to be part of the solution. Although there will always be an element of reacting to current affairs and regulations, there is a real opportunity for organisations to build consciously inclusive cultures, and be better prepared to meet customer needs now and in the future.

Financial Risks from Climate Change

• May saw the BoE publish the results of the Climate Biennial Exploratory Scenario (CBES) which explored the risks of how 3 climate-related scenarios could affect banks and insurers, the outcome of which provides some significant implications
• This was preceded by the former governor of the Bank of England stating the climate crisis would dwarf the current cost of living crisis
• There was a mixed reaction to the report, with one well-publicised response claiming the Banks' “apocalyptic warnings are ALWAYS wrong”
• A separate report however did emphasise the risk of “investor activism”, the risk to organisations of investors valuing ESG factors more highly when making investment decisions, so organisations across all industries need to respond
• Banks, in particular, have a considerable role in managing climate change, with organisations often dependent on them to support raising capital for operations, leaving them under the watchful eye of customers and investors
• Many banks are already taking action, with Deutsche Bank cleaning up its supply chain by demanding sustainability ratings from suppliers

PEN Point Of View:

Taking action on environmental, social and governance risks is key, and it provides organisations with a great opportunity. Embedding ESG into risk frameworks is one thing, but banks need to consider ESG in all operations, product and sales decisions. To make a real difference with ESG the strategy needs to run through the organisation, with buy in from employees. Setting ESG targets top down is less likely to drive the results needed.

And in case you missed it…

• Strong Customer Authentication (SCA) rules introduced in March are reducing card fraud. Nationwide has stopped 2000 more frauds a month.
• Cloud adoption remains a priority for organisations, with Santander migrating 80% of their IT infrastructure to the cloud
• UK business loans written off by banks almost doubled in the last quarter of 2021
• Lending to small businesses hits all-time low, with only 43% being approved – also an all-time low

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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