Banks will be legally obliged to provide a basic bank account to all UK citizens under plans to be announced in tomorrow’s budget. Under the rules designed to reduce financial exclusion, banks would be forced to offer accounts to all applicants, and those who did have problems accessing an account could be offered the right to appeal.[From 2010 budget: Banks ‘to be forced’ to provide accounts for all | Money | guardian.co.uk]
If legislation is introduced it could (but won’t) benefit some of the 1.75 million adults who, according to the Treasury, have no access to a transactional bank account. Basic bank accounts have been around for years but I guess that banks are still allowed to say no to you if you want one but clearly have no money. A basic bank account is just a very expensive version of a prepaid account.
Basic bank account – for managing day-to-day money. It doesn’t usually allow you to go overdrawn by more than £10, if at all. We outline the basics here but if you’d like more information see our Basic bank accounts printed guide. You can download it or order a free copy online – see Free printed guides.[From What is a bank account : FSA Money made clear – products explained]
Robert Peston, the BBC business correspondent who is believed to be closely linked to the government, commented that
The chancellor, Alistair Darling, is convinced that gaining access to a bank account enhances an individual’s ability to find permanent employment – although the connection is not straightforwardly obvious.[From 2010 budget: Banks ‘to be forced’ to provide accounts for all | Money | guardian.co.uk]
Since the Treasury notes that four out of five of individuals without access to transactional bank accounts are either retired or too young to pay national insurance, Peston is surely correct in this general point although we’ll come back to a specific case where the connection does matter below. But for the moment note that, as the government has identified, people who are forced to live in a cash economy are at significant disadvantage: irrespective of the impact on employment, we can improve the lot of the poor by bringing them in to the system. Peston said research for the government’s Digital Inclusion taskforce suggested that poorer households could be missing out on savings of £560 a year available to those who are able to shop online.
Financial inclusion efforts need to be made to bring them into the system. I may disagree with the government about the solution — because I favour basic payment accounts as the first rung on the ladder of financial inclusion, not expensive and heavily-regulated bank accounts — but their point is valid. But what if you can’t prove your citizenship (I couldn’t figure out if this mean UK or EU citizenship but will try and find out) and provide a “provable residential address“? What if you don’t have an identity that is deemed acceptable?
Kavita Datta is Senior Lecturer in Geography, Queen Mary University of London. She put in a terrific performance on our expert panel on financial services for the poor at this year’s Digital Money Forum. I asked her along because she has been doing some research on payment and remittance needs the UK’s immigrant communities, research which not only added greatly to my knowledge of the topic but I think contains pointers for our customers to develop new businesses. In her research — which, as an aside, showed that there are really interesting variations in nationality: Bulgarians have bank accounts, Brazlians don’t because their immigration status is “irregular”: and Somalis have Post Office Card Accounts (POCAs) because they are on welfare — she has looked at how the poor get access to bank accounts. Why? Well, as she said at the Forum, if you are an immigrant you can get a job without identification documents but not a bank account. Which, I think, proves my claim that it is easier to get a job with a UK bank than an account with one.
But what she said about bank accounts was especially fascinating. She said that migrants develop a number of strategies to obtain bank account services without the needed identification documents, demonstrating, I suppose, that the 1.75 million citizens who don’t have access to transactional banking service simply have no motivation to do so, and making it their legal right won’t make the slightest difference. Anyway, broadly speaking, the strategies are:
- Access formal financial services. Migrants are directed to specific bank branches and, even more interestingly, specific bank tellers who were known to be sympathetic to migrants and would help them to open bank accounts even if their documentation wasn’t absolutely as complete as it might be.
- Purchase (illegal) ID documents or share bank accounts. There are a number of different ways they do this.
- Purchasing national insurance numbers (from migrants leaving the country) or passports or driver’s licences and then using these to obtain bank accounts.
- Corruptly purchasing bank accounts. She quoted one migrant in London who said that “I paid a man £150 and he got me an account by paying someone who works for [name of UK clearing bank elided]” and indicated that this is not uncommon.
- Finding someone with a legitimate bank account and paying them to share the bank account between a number of people, so that they can get salaries paid in and then withdraw cash via ATMs.
- Rely on financial resources back in home countries. Some migrants keep their bank accounts in the old country and simply send all of their money back there (losing far too much of it in charges and F/X costs on the way.
- Recreating traditional financial practices. I don’t have the space to go into this here, but there is apparently within London a vibrant set local, community credit organisations ranging from Turkish “gold days” to African credit circles.
There are lots of ways that the e-payments business can create new products that directly benefit these communities — by providing, for example, simple pre-paid products with reasonable costs for remittance transfers — while simultaneously steering them away from crime and informal channels that rip them off. Trying to stop illegal immigrants from getting bank accounts doesn’t stop them from getting bank accounts it just raises the costs of doing so, both for the illegal immigrants and for the indigenous excluded, so a shift from the identification-centric bank account as the entry point to the money-centric prepaid account will help everyone.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]