How data is driving efforts towards greater financial inclusion
Ensuring financial inclusion and capability is a priority of the UK Government, particularly given the effects of COVID-19 on individuals’ ability to remain financially resilient or engage with more digitally driven financial products and services, such as online banking.
Data and analytics can play a significant role in helping financial services, organisations and the public sector understand the scale of challenges related to financial exclusion, map trends and develop targeted strategies and interventions. For example, London Borough of Barking and Dagenham has invested in the Council’s data science and analytics capabilities to take a more preventative model approach, shifting to intervention and reduced dependence on the Council. All done in an ethical and secure way.
One in seven financially excluded
Despite there being pockets of good practice across the UK in tackling financial exclusion, there is still more that can be done – and data can play a key role.
techUK member, LexisNexis® Risk Solutions has carried out in depth analysis of its UK data sources, combining two of the UK’s largest Credit Reference Agencies (CRAs), short term loan applications and around 30 alternative public and private sources, to create a unique and comprehensive picture of UK financial exclusion.
Analysis shows that around 7.1 million people (one in seven, or around 14% of the adult population) in the UK fall into the definition of ‘financially excluded’, meaning they could potentially struggle to access affordable and fair financial services. It also found that over 637,000 people fall into the definition of Credit Invisibles, rendering almost three-quarters of a million people effectively un-scorable in credit-risk terms.
Regional matters
Combining 2.6 billion records with powerful statistical linking technology, the analysis also provides a detailed, regional overview of financial exclusion and its underlying causes across the UK adult population.
Using data across 380 UK local authorities, LexisNexis® Risk Solutions has provided a granular picture of the extent to which populations, right down to community levels, could be suffering from financial exclusion and vulnerability. An interactive heat map shows how financial exclusion is distributed across the UK population, and how regions compare.
As techUK’s National and Regions work shows, regional data is essential for developing appropriate policy solutions that reflect local experiences and priorities that are fit for purpose for each region in the UK.
Promoting data availability
Analysis of financially excluded individuals found that as many as 77% could be helped using alternative data solutions, meaning a further 5.5 million UK adults could gain access to fairer and more affordable financial services, for the first time ever.
Data re-use and linkage, such as LexisNexis® Risk Solutions’ analysis, shows the potential to unlock enormous value across society and the economy, as rightly identified by the Mission 1 pillar of the National Data Strategy (NDS).
As Government develops its thinking under the Mission 1 Policy Framework, promoting and helping to facilitate good data quality and availability will be key in supporting organisations to use data in new and creative ways to address pressing societal and economic challenges such as financial inclusion.
Read the full report findings here.
“Our study reveals a staggering flaw in the UK credit sector at the moment. It is increasingly clear that credit scoring methods relying on generic credit history trends are becoming ineffective in the face of an increasingly dynamic UK population in which people’s lives are nuanced and complex. Placing people in broad risk buckets using limited data and models that have not changed in decades is a system that needs urgent rethinking. By using alternative data, we can help build a clearer, fairer and more realistic picture of a person’s creditworthiness and drastically reduce the problem of financial exclusion.”
Dani Dhiman
Dani is Policy Manager for Artificial Intelligence & Digital Regulation at techUK, and previously worked on files related to data and privacy. She formerly worked in Vodafone Group's Public Policy & Public Affairs team supporting the organisation’s response to the EU Recovery & Resilience facility, covering the allocation of funds and connectivity policy reforms. Dani has also previously worked as a researcher for Digital Catapult, looking at the AR/VR and creative industry.
