This is the first in what may become a regular series of short reviews from CFCFE of new publications that are relevant to its members but which they might not otherwise see or have time to read.
In January, Policy Exchange, a British think tank, published FinTech For All: Ensuring that everyone benefits from innovative financial services.
Introduced by three new Conservative MPs, the 118 page report is a detailed brief on the public policy implications of emerging fintech solutions in Britain.
While the paper’s specific value to community finance institutions is limited by the authors’ lack of effective engagement with our sector, the publication makes two essential points that are highly pertinent to credit unions and CDFIs:
- First – a competitive threat. Fintech dramatically reduces the barriers to entry and the operational costs of the provision of basic financial services, meaning low income people become more commercially attractive to service. This brings new providers to the market, and social enterprises cannot assume their moral high ground is enough to secure their market.
- Second – an opportunity. Fintech, in the form of new credit scoring models informed by Open Banking, enables much better analysis of the credit risk posed by low income people, potentially enabling more and safer responsible lending to members and customers of credit unions and CDFIs.
(These points are further explored in CFCFE’s new paper on the risks and opportunities of Open Banking.)
Unfortunately, the report’s authors do not appear to have an up-to-date understanding of credit unions. That is evidenced by their references to the now-defunct Credit Union Expansion Project, by their strong implication that recent credit union growth results from public policy, and by the paper’s dismissal, without discussion, of the idea that the sector’s ownership model is a relevant consideration for providers.
Some ideas put forward will be familiar (and not particularly fintech-y). Allowing people to borrow based on a multiplier of savings is a traditional model for credit unions, and the need for credit unions to collectively pool their excess liquidity in a central finance facility is a long-standing ambition. Bizarrely for a broadly market-orientated think tank, the report suggests that such pools be administered by HM Treasury or the Department of Work and Pensions, as opposed to a company owned by credit unions themselves.
Nick Money, CFCFE