Financial Exclusion in Manchester:
Roundtable Discussion
Background
LexisNexis® Risk Solutions released Alternative Credit Scoring: A Manchester Study in June 2024, revealing that 362,000 people across Manchester could access more affordable mainstream credit if banks and financial services providers strengthened traditional credit scoring by also using complementary scoring data and tools.
Reporting on analysis of 2.18 million people aged 18+ years living throughout Manchester ‘M’ postcode areas, the study found that one in five (22%) of the population (almost 480,000 people) currently lack the necessary credit footprint to be successfully scored by most high street lenders. This means they would be refused loans and credit at the most affordable rates. Subsequently, the firm joined forces with the Manchester Chamber of Commerce to host a roundtable event on 30 May, inviting representatives of local organisations tasked with tackling the causes and effects of poverty and exclusion, including local councils, debt charities, credit unions and academia, alongside employees of banks and lending organisations.
Setting the scene
Opening the discussion, the Chair reflected that although the city of Manchester is booming in many ways, as evidenced by the way the city centre skyline has changed so dramatically in recent years, there are nonetheless pockets of prosperity and poverty which are all too often within close proximity. Only a mile or two from Deansgate in the city centre, for example, there are pockets of significant poverty, while some areas of Manchester are in the top ten worst affected in the UK. It is clear that the gap between rich and poor had widened, with the Covid pandemic exposing the gaps in terms of health exclusion. With so many communities left behind, financial exclusion is, therefore, a highly relevant and pertinent.
The Manchester financial exclusion report by LexisNexis Risk Solutions leverages the vendor’s LexID capability – a unique identifier and statistical linking technology that uses proprietary linking technology to match seemingly unrelated records from disparate datasets, by referencing not only the data between two records, but analysing the uniqueness of that data compared to the population as a whole. Sourcing data from around 70 unique sources, LexID draws from some 2.4 billion UK name, address and date of birth records to create what is considered to be the definitive view of the adults living in the UK.
In attendance was Steve Elliot, Managing Director of LexisNexis Risk Solutions for the UK and Ireland. He observed that credit worthiness was assessed based only on people’s interaction with credit in the past, therefore if they’d never used a credit card, there’s no data on them. As a result, usable information on an individual can be limited, or even non-existent. An ex-pat coming back to the UK after working abroad, for example, will have no UK debt history and could therefore struggle to get any type of credit or mortgage. Similarly, a divorcee might have a thin credit file if their partner handled all their banking and loan application. Students may have limited activity on their files before starting work. Steve reflected on the need to look to other ‘alternative’ data when assessing what people might do in the future, in terms of their propensity to pay, including non-credit events such as asset ownership or property data, professional accreditations and others.
One in seven people are excluded from credit
Into the detail
Large parts of the UK population – one in seven people according to a 2021 study – are excluded from credit because they have thin credit files, but, as the same study revealed, around three-quarters of these people are not actually high-risk borrowers.
In Manchester, LexisNexis Risk Solutions found one in five people have thin credit files and as many as 82% of those are credit worthy. They say thin credit files are a real problem for the industry as they compel businesses to say ‘no’ when they could say ‘yes’, if they had better information to assess worthiness.
Those around the table representing universities shared the findings of their research into financial exclusion, highlighting that having a bank account was, in itself, not enough, as some people have them, but do not use them enough.
Their research showed that low-income households often used other (manual / physical) payment methods to manage their finances and there was clear link between a lack of digital skills and financial exclusion.
Those representing credit unions said one of the main issues is that it is sometimes simply not commercially affordable even for a credit union to lend to people. They also pointed out that people coming to the UK might not be familiar with the system of credit cards and want to pay cash or lend from immediate family or friends, because that is their culture. There were also concerns around identity proof for migrants and having to hand over passports, which could be retained. It was agreed that it’s important to work with ethnic groups on solutions that suit their cultural expectations, rather than assuming they can be integrated into British norms.
One of the delegates highlighted the impact of being a high credit risk. They pointed out that in one local town there was a 15-year gap in life expectancy between different parts of the town. They emphasised the need to work with local authorities to help people access the benefits they were entitled to. They reflected that people in this situation were often time poor, or had mental health problems, which made dealing with financial issues even more difficult. Others advised that often people avoid the credit application process for fear of having their character and situation judged.
An estimated 250,000 people were eligible to use the credit union service, but only 5,000 do.
Distribution of exclusion
Another delegate said affordability was the issue, rather than credit files. They advised that in their borough, an estimated 250,000 people were eligible to use the credit union service, but that only 5,000 do.
Part of the challenge here is that the people that can benefit from it, don’t know it’s there. Unions lack budget for expensive marketing and social media campaigns, and up against the bottomless budgets of the payday lenders, they struggle to compete. Moreover, among those they do successfully engage with, 85% of loan applications are turned down because of County Court judgements and defaults against them – a consequence of their scoring methods being weighted towards previous credit behaviours rather than alternative scoring methods.
Representatives from the banks said they had been looking at how they could help immigrants coming to the UK by exploring what documents they could accept to open a bank account. They said they were also working with homeless charities to help homeless people find different ways to verify their identity to gain bank accounts – strongly linked to social mobility. In addition, they were also working with the Citizen’s Advice Bureau to help people, such as ex-offenders access the support they need.
Delegates reflected on the need for cultural sensitivity and empathy even within UK communities. Immigrant populations, for example the Windrush Generation, have traditionally put their money into a community pot rather than using the banking system. Consequently that have no credit footprint, but are by no means irresponsible with money or should be considered a high risk lending prospect. Delegates gave evidence that people in these communities were more likely to go a friend than a bank or use the pawn shop to raise cash, as it was quicker than the bank. They might even borrow money from a local criminal, rather than a bank, as they trust the person, known to them, over the faceless institution.
It was generally felt that financial education in all its guises is vital from an early age, to engender the correct behaviours in people and a healthy attitude to money and saving. There is a clear benefit to teaching children to use banks, and in introducing financial education into the curriculum. Although some bank staff do go into schools to talk about banking and online safety, delegates said this needed to be done more consistently on a national scale.
It was pointed out that if children do not have a family member with financial skills, they’re less likely to learn these skills and will find credit checks and mortgage applications intimidating in the future. This early-age conditioning could also help to dispel perceptions that asking the bank for a loan reflects negatively on the individual or that doing so will be a negative experience. Banks need to do more to raise their profile and perception amongst these communities.
On the distribution of exclusion, it was highlighted that this could be highly focussed on a small geographic area, sometimes as small as 10 streets wide. It was agreed that there’s a need to build confidence in the populations of these areas through financial education and this has to be repeated across the country.
There was also a warning that exclusion could be spreading, as financial difficulties creep into the middle classes as a result of the cost of living crisis. The increasing use of foodbanks among middle-income families is well reported. The route to exclusion can be surprisingly short, when financial difficulties lead to short term lending, which may lead to defaults and CCJs.
Local partnerships were called for to help improve the situation and prevent people turning to loan sharks. It was felt that those experiencing poverty must be allowed to influence policy and that there needs to be fundamental changes in our economic system. Germany was held up as an example of a country which had much more community-based funding available than the UK.
Solving Financial Exclusion
At the end of the meeting, the delegates were given the opportunity to suggest ways in which the problem of financial exclusion could be alleviated or solved, with the following suggested:
