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Barriers to banking: The inclusion of homeless and refugee populations into financial services

Samir Kothari
The Collective Originals
Published in
11 min readMar 2, 2022
Credit: https://capitalmonitor.ai/

As recently highlighted by the advertisement released by HSBC Bank, people experiencing homelessness or housing difficulties tend not to have a fixed address. To open a bank account in the UK, you must have proof of your identity and proof of your address. The implication of not having either of these is that you cannot open a bank account with a local high street bank. The primary effect of this is no access or restricted access to employment opportunities whilst the secondary effects are far reaching and longer lasting.

Without a bank account, it is almost impossible to get a job. Without a job, you can’t pay for rent. Without a fixed address, you can’t get a bank account. And repeat.

You could argue that the role financial institutions play in society are greater than pure economic prosperity, ongoing wealth creation, or sustaining social stability. “The [UK] government’s vision is for an open, green, and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses, and powering growth across all of the UK”.

To achieve the above and more, financial institutions have a social responsibility to provide financial foundations and stability to the communities and citizens that need them the most. To enable and empower. In turn, this will drive greater economic prosperity in society, greater wealth creation and increased social mobility. Financial services enable people to access opportunities. This takes the form of savings accounts, ISA’s, mortgages, insurance, wealth planning, pension plans and lending schemes.

By enabling people to access the very basics in a bank account, the right financial services can empower them to seek opportunities and to aspire to create their own financial and social futures.

Inclusivity through action

We will look to understand how our financial institutions are positioned to help the most vulnerable in society and what else they can do. We will look at homeless people (without a fixed address) and refugees (without adequate identification) who are unable to open bank accounts and access financial services to gain employment, residency, and societal integration.

It is estimated that there are 274,405 homeless people in England as of December 2021. In the recent UK Government’s Levelling Up Agenda, local community outcomes are front and centre. The effects of the pandemic have mirrored, and in some cases exacerbated, our entrenched health and social inequalities. Never has the interdependence between health and the economy been closer, or the need for a fairer and more inclusive economic system been clearer.

At the end of 2020, there were 132,349 refugees, 77,245 pending asylum cases and 4,662 stateless persons in the UK according to the UN’s refugee agency. These figures have increased dramatically in 2021 with the number of migrants crossing the channel trebling from 2020 to almost 30,000. Only once refugee status has been granted can the process of opening a back account begin. The Government only provides 28 days of support after which risks of homelessness and destitution increase. Furthermore, refugees and migrants are less likely to possess proof of identity as identity documents can be forgotten, lost, destroyed, or stolen during their journey to refuge.

“Inclusive growth is about supporting communities, drawing on innovative finance and partnerships to mitigate unequal access and affordability among underserved populations.” Goldman Sachs — Inclusive Growth

Financial inclusion is now a major part of banks’ strategies to enable them to connect with their customers and communities. It is broad ranging and covers multiple facets such as vulnerable groups, low-income families, those with poor and / or no credit history, and the elderly.

The World Bank is a firm believer that financial inclusion will play a huge role in reducing extreme poverty and boost shared prosperity.

The current policies aiming to reach this goal encompass multiple objectives. For example, HSBC launched a programme focussed on homeless people with no fixed address to provide them basic banking services. The programme launched in partnership with Shelter in December 2019 and has extended to almost 150 branches nationwide. In addition, they have partnered with over 70 organisations that can act as an identity verifier — a crucial step in the process. By doing so, they have cast the net wider and far more people are able to access the programme. It allows individuals to become financially included, providing a way to receive a salary, benefits or tax credits.

Credit: phdmedia

Lloyds, Bank of Scotland and Halifax are other UK banks leading the charge. They launched a programme to allow refugees and vulnerable groups to use alternative sources of identification to access banking such as Biometric Residence Permits. Like HSBC, Lloyds have partnered with charities supporting refugees and homeless people who can provide letters of recommendation to confirm their identity.

Across the channel in France, BNP Paribas are using an acquired Fintech firm, Nickel, to enable refugees and other unbanked individuals to access financial services via one of 6,000 local tobacconists in only five minutes. BNP Paribas’ process does not rely on charity partnering for identity validation and does not require a fixed address. In 2020, 28% of the clients who opened accounts via the Nickel programme did not have a home. As basic bank accounts don’t drive earnings for a bank, some will charge a small set up fee and % on transaction. Claudia Belli, Global Head of Social Business and Microfinance at BNP Paribas, confirms that the programme charges €20 a year for its services and a 2% fee for each transaction.

The success of BNP Paribas’ programme is underpinned by the ability to innovate and creatively consider alternative methods of inclusion. BNP Paribas also offer a complete line of basic services, training schemes and lending to early-stage refugee-led enterprises. The key themes for a successful inclusion policy stem from innovation, partnerships, and technology. And at the very heart of this is empathy. Institutions that create policies for the community and not just for Corporate Social Responsibility purposes connect better with their customers.

Banks have shown they can innovate at pace when it matters. During the COVID-19 lockdowns in the UK, people who were not digitally enabled or were shielding were able to withdraw cash to pay for necessities via a Post Office.

“The biggest part of our digital transformation is changing the way we think.” Simeon Preston, (Ex-Bupa CEO)

As seen with BNP Paribas, challenger banks and Fintech companies are ahead of the curve. For instance, Monzo Bank has specifically created a way for refugees to open bank accounts using their Biometric Residence Permit (BRP) if a passport, driving licence or national ID is unavailable. This is a big step in the right direction to accept alternative methods of identification so that a new life in the UK can start in earnest. Monzo’s offer is a notable example of innovation in the financial services sector, which demonstrates the ability to challenge norms. To manage risk, they have created an account which restricts the amount of cash that can be withdrawn and does not come with an overdraft facility. It also provides the individual with an account number and sort code so they can get paid. The accounts can be upgraded later if required and the owner is eligible.

Documentation is a key part of the Know Your Client (KYC) process that banks must legally undertake to ensure they know who their customers are and can verify their identity. This is to ensure banks are not used for illegal purposes such as money laundering or terrorism financing. To pass KYC checks, valid documents proving identity and residence are key. This is the first hurdle that refugees face as most banks will not accept humanitarian-issued IDs.

Credit: Internet of Business

Digital ID’s

Mobile and digital technology have a huge role to play as enablers. This has been successfully demonstrated by the UNHCR, which uses an electronic registration and case management system to facilitate the registration of refugees. In 2015, the UNHCR launched a Biometric Identity Management System to digitally collect and store data. The use of this technology means that once data is processed it can be encoded into an ID. In Malaysia, individuals can use their phone to scan their ID card and prove its validity. The success of this approach has added credibility to the UNHCR ID cards. The registration process is akin to the KYC process banks will undertake. The UNHCR are also investigating how to link digital IDs to remittance payment products to increase access for refugees. As shown by Monzo, expanding on the types of ID’s that can be submitted would open access to basic services.

Taking things one step further, ‘economic identities’ are being created by BanQu, a Blockchain provider, to help displaced Somalis gain access to financial products by storing key personal and transactional data on a secure ledger. “A refugee can access the BanQu app using a mobile phone, like logging onto Facebook, and then connect with family members and other social connections who help to validate their information.” Blockchain is a secure and traceable mechanism that banks could use as part of their KYC checks for individuals who do not have the standard documentation or a fixed abode so that their identity, status and credentials can be verified.

A UNHCR case study conducted in Iraq found that 89% of the population lacks access to formal financial products, giving the country one of the highest rates of financial exclusion. However, high mobile penetration means that mobile money services could bridge that gap. In Iraq, as long as a refugee is registered in the UNHCR biometric database and has a registration certification, they can open a mobile money account. As for Monzo accounts, this account has limits but at least provides the ability for the movement of money. This alternative KYC approach has also proved effective with the World Food Programme’s (WFP) digital cash card. By registering their identification and biometrics into the WFP’s database, refugees are able to swipe their card at a shop and have their identity automatically validated.

Credit: Zain Cash

Another great example of innovation driven by Fintechs is ZainCash. The Iraqi mobile money services links to a registered SIM card which allows the user to receive and make payments. By partnering with the UNHRC, ID’s and certificates are valid for KYC checks. A refugee’s ID number, name, date of birth and other personal details are recorded electronically via ZainCash’s application process to open an account. By integrating with the user’s SIM card, the service can send an SMS message to confirm transactions and opens additional opportunities for the supplier. ZainCash charges a 1% fee to the humanitarian organisation on the value of each transaction to support long-term sustainability and propriety.

Finding Solutions

The financial inclusion challenges that vulnerable groups in society face are substantial and prohibiting. We have identified distinct similarities facing both homeless people and refugees when it comes to accessing basic financial services, the biggest being exclusion from society, upward social mobility, economic independence and self-reliance. But we have seen that homeless and refugee populations are extremely resilient and not short on determination, and that solutions can be found in alternative KYC frameworks, charity partnerships and Fintech innovation.

Alternative KYC policies

KYC policies are rigid and robust for a reason: to understand risk and avoid illegalities in the banking system. However, this rigidity has proved to be the first hurdle for vulnerable groups as homeless people lack the required fixed address and refugees lack the required forms of identification.

“The key to this is… knowing exactly what these customers are facing so the bank can identify areas where they might be able to change processes to help them access banking,” Aferdita Pacrami, head of communications at Lloyds Foundation.

We have seen the success of programmes like HBSC’s No Fixed Address and BNPP’s tobacconist link up. Banks should continue to run standard monitoring checks to verify the source of funds and to ensure compliance, but bypassing the need for a permanent address means that basic accounts can be opened more easily and give users access to employment, payment of necessities and freedom. KYC is here to stay but undoubtedly needs to be adapted. The UNHCR have effectively shown how this can be navigated when setting up refugees with identification documents.

The Third Sector

Partnerships with the third sector are vital to give vulnerable people access to financial services. Not-for-profits have vast amounts of expertise, data and know-how that can be channelled into financial inclusion policies. The UNHRC and the World Economic Forum’s Humanitarian and Resilience Investing Initiative are just two brilliant examples of bringing together government, finance, and NGOs to help underserved or challenged populations to access the financial system.

As basic banking services such as accounts with no overdraft facility don’t tend to drive profit, there is little take up. However, their social impact can be far reaching. Banking support services, charities and local administrations are key. With the right support, education and training, people will feel empowered to become economically independent. The Refugee Council has created multilingual guides explaining how to open bank accounts in the UK, the documents required, how to apply and how to stay safe. Refugees can contact local charities or the Refugee Council for more information on which banks can support their circumstances. As with the HBSC No Fixed Address scheme, advertising is a powerful medium to reach those affected and bring general awareness to the problem. Allocating marketing budget to causes that directly reach marginalised groups will not only improve customer sentiment but also bring greater awareness.

Technological Innovation

Although many UK banks were able to adapt and pivot during the COVID-19 lockdowns, they haven’t been able to keep up with the pace of challenger banks. Challenger banks have proven it is possible to be online-only and provide high-quality services and support. Traditional high street banks have partnered with innovative technology services for aspects of KYC and identification & verification (ID&V) to allow them to gain customers by providing better experiences. Investing in technology is at the heart of every bank’s strategy and partnering with Fintechs allows to scale more quickly and meet customer needs whilst remaining relevant. As seen with ZainCash and BanQu, mobile-first technology is an area of focus in developing nations where mobile penetration is high. Coupled with underlying blockchain technology, the movement of money can be regulated, controlled and monitored.

There is no silver bullet here. Banks must be willing to adapt and scale. They should cultivate strong, broad relationships with the partners who can help them implement meaningful financial inclusion policies. The financial services sector has a responsibility to be available for all and act as an enabler in society to give everyone the opportunity to prosper and create their own futures. By providing the right skills and tools, banks can facilitate economic independence and pave the way for upward social mobility.

References

Financial Inclusion
Banking Innovation
Fintech
Financial Services
Access To Finance

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Samir Kothari
The Collective Originals

Written by Samir Kothari

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