Context

In the UK, 24 million adults don’t feel confident managing their money. Nine million borrow money to buy food or pay their bills. Over ten million rarely or never save – and 12.4 million would have to borrow, or could not pay, when faced with an unexpected bill for £300. Increasing the financial capability of those who are struggling is of paramount importance for the health and wellbeing of individuals, and for the wider economy.

Financial capability is the ability to manage money well – both on a day-to-day basis and through significant life events. It comprises financial skills and knowledge, and also encompasses behaviours, attitudes, motivations, and the degree of connection to the financial system. The national challenge of improving financial capability is vast and complex. While financial difficulties may arise from circumstances outside of people’s control, low financial capability is contributing to millions of people in the UK being without the financial resilience needed to deal with financial shocks.

The retail banking sector is uniquely placed to help millions of customers take control of their money through core products and services – and in doing so, help customers increase their financial capability.

The study

This 2019 report from the Money and Pensions Service (MaPS) focuses on retail banking customers. It seeks to understand and explain the extent to which financial capability is embedded within the core products and services of the retail-banking sector. MaPS commissioned IFF Research to conduct primary research to understand how retail banking providers are helping customers to improve their financial capability through their products and services, and how this is understood and regulated across the sector. MaPS identified and recruited 19 firms to take part in this research. They included:

• Major banks and building societies (e.g. Barclays, Lloyds, HSBC, etc)
• Mid-tier banks and building societies (Co-operative Bank, Virgin Money, etc);
• Challenger banks/financial technology stakeholders (Monzo, Starling, etc);
• A credit union (1st Alliance).

IFF carried out desk research on the 19 participating providers, and conducted face-to-face or telephone interviews with relevant people who understood their firm’s current and savings account products and their approach to financial capability. The participants were typically product managers at middle to senior management level, though broader commercial or marketing roles were also included. In total, 42 employees were interviewed between October 2018 and January 2019.

Key findings

• Interviewees mostly recognised the concept of financial capability. However, understanding was inconsistent between firms and was mostly high-level.
  • Some key aspects of financial capability were generally not mentioned, including planning ahead or attitudes to day-to-day spending, saving and borrowing.
• Providers say they attempt to put their customers at the centre of their products and business, rather than with a specific aim of increasing financial capability.
  • No providers were explicitly considering financial capability as part of business cases for new products and services, nor were they attempting to quantify the potential commercial value of increased customer financial capability.
  • However, providers did recognise that increasing financial capability could lead to long-term commercial benefits.
• The report identified 13 products, services and features aligned to financial capability. These were mostly clustered around the everyday money management skills of keeping track and active saving, with fewer features related to planning ahead.
  • These features included: round-up saving; workplace savings from payroll; automated saving; spending analysis; viewing all accounts in one place; text/app alerts; utility bill switching and gambling blocks.
• The report showed that while progress has been made, there is a significant opportunity to do much more to help improves customers’ financial capability.

1. Improving customers’ financial capability should be a strategic goal for the sector. Including working with MaPS to build evidence of causal links between improving financial capability and achieving longer-term commercial value.
2. Financial capability should be integral to product and service design and evaluation. Including understanding customers financial capability needs; providing them with effective solutions; and measuring impact and sharing learning.
3. The sector should work together to drive a cultural shift around money in society. Including using data to observe customer behaviour around money and make recommendations to help them reassert financial control and reduce their anxiety.

Points to consider

Relevance:

• This report is relevant to any commercial organisation with an interest in improving their customers’ financial capability, and in particular to those in the retail banking sector.

Generalisability/ transferability:

• This research is based on the views of numerous expert stakeholders and the recommendations are at least partly generalisable to other sectors and client groups within the UK’s financial services industry.