According to a report recently published by the Combat Poverty Agency, a no-frills bank account may be the answer to help bring financially excluded people into the banking system.
The new report focuses on people encountering difficulties in accessing or using financial services and products in the mainstream market that are appropriate to their needs. The report found that financial exclusion is a major problem among low-income households. For example 60 per cent of people in the lowest income decile do not have a current account, compared to only 2.7 per cent in the highest decile.
Combat Poverty say that one in ten Irish people over the age of fifteen are without any type of bank account; one in five households do not have a current account and Ireland has the fourth highest level of financial exclusion among the EU-15.
Kevin O’Kelly, Acting Director of Combat Poverty, said low income consumers who have no bank account are at a distinct disadvantage.
“For a start, people without bank accounts lack security in holding or storing money,” he said.
“This means they are vulnerable to loss or burglary. Secondly, bill payment can be more time consuming and costly without a bank account and charges can be higher for basic financial transactions such as cashing cheques. In addition, it can be more difficult to take up employment or find accommodation without a bank account, while people without a debit or credit card are unable to take advantage of the lower prices of goods and services that can be bought in this way."
O’Kelly talked about the hazards of using unscrupulous money lenders and the fact that people who are forced to live outside the mainstream financial services are, more likely to turn to money lenders to source credit.
“Ten per cent of adults in Ireland currently use the services of authorised money lenders, which can incur interest rates ranging from 23 per cent to 200 per cent per annum.” Resorting to money lenders can lead some families into accumulating debt.
“In short, difficulties accessing and using financial services can exacerbate experiences of poverty, and such difficulties need to be addressed.” said Mr O'Kelly.
One of the best ways to do this according to combat poverty is by introducing basic, no-frills bank accounts. This has been proven to be the case internationally. According to Mr O'Kelly “This has happened in Belgium, Germany, Italy, France, the Netherlands and the UK. Basic banking services involve the provision of simple, low-cost, no-frills current accounts, designed for people who want to ensure that they cannot overdraw their account or who might not meet the banks’ criteria for opening a standard current account.”
“The new Irish postal bank is developing financial products suited to the needs of low-income consumers and, therefore, could play an important role in the provision of universal banking services. Some credit unions are also piloting a new service account, which may be suited to the needs of financially excluded people. We hope to see an increasing number of these initiatives over the coming years.”
“Financial exclusion is predominantly associated with low income consumers due to a failure of the market to respond to their distinct financial needs,” said Kevin O’Kelly. “Action to address financial exclusion must begin at senior policy level through legislation and regulation, and at industry level through product development by mainstream service-providers.”
About Combat Poverty
Combat Poverty is a State agency which develops and promotes evidence based proposals and policy measures to tackle poverty in Ireland.
