This habitual change, brought about by the integration of savings features in financial products, has been hailed by the Archbishop of Canterbury as “having a transformative effect on the financial lives” of SAYB users. The new Save As You Borrow – Credit Unions Creating Good Habits report, was launched at a session of the All-Party Parliamentary Group on credit unions.

Illustrating the scale of the positive impact of SAYB schemes, the report found that only 26% of respondents were saving regularly before taking out an SAYB loan. Through the positive effect of SAYB encouraged saving, 71% of users said they would continue to save regularly throughout the year after paying back the loan. An overwhelming majority of 97% of respondents confirmed that they found the approach from credit unions helpful in encouraging them to save.

When respondents were asked about how they thought their SAYB product was helping them, almost a third replied that they would find it difficult to save if it wasn’t done for them through their loan. One in five also replied that they realised the need to set funds aside for a “rainy day”. Only 15 out of 1,055 respondents said that they thought saving while repaying the loan was unhelpful.

Credit union loans are among the most competitive in the market for amounts up to £3,000. Although customers might think that it takes a little longer and there is an incremental increase in the interest costs of SAYB loans, the additional cost brought about by the savings features will in most cases prove to be very small. On top of this, 79% of people said that this approach was worth it in the long run. 17% of these spontaneously said that it paid off, quite literally, in terms of having a lump sum at the end of the loan and 12% said that it helped change their approach to saving in the future.

In addition to the SAYB impact, the report analysed the effectiveness of further product features that are deemed positive for the financial well-being of their customers and found that many of these prove highly effective as well, such as the support that is given to borrow the right amount: 81% of respondents said that they had reviewed their income and expenditure in order to work out how much they could afford.

The Community Investment Coalition (CIC) campaigns for a radical re-shaping of the provision of affordable financial services in deprived communities.  This will reduce reliance on high cost credit, support innovation and competition in financial services markets and give people the financial tools they need to participate in the economy.

Key to achieving this change is increased transparency and public accountability of financial service providers to support consumer choice and allow effective intervention in under-served markets.  For this reason, we have championed the need for disclosure of bank lending data at a geographical level. Our campaign is supported by a range of politicians and organisations, including the Church of England.

In its final report, Changing Banking for Good, the Parliamentary Commission on Banking Standards stated that: ‘Increased disclosure of lending decisions by the banks is crucial to enable policy makers to more accurately identify markets and geographical areas currently poorly served by the mainstream banking sector’.

In 2013, a voluntary framework for the disclosure of bank lending data was agreed, with the first tranche of quarterly data released in December that year.  So nearly one year on, with four sets of data released, what do we know? A new report ‘Tackling Financial Exclusion: Data Disclosure and Area-Based Lending Data’ by Coventry and Newcastle Universities is the first significant analysis of the data.  Commissioned by Big Society Capital, CIC, Citi Community Development and Unity Trust Bank, the research found that currently, the lending data is limited and publication at postcode sector level increases the technical requirements and costs of meaningful analysis. The data does provide for some analysis of regional disparities of lending.  For example:

• Median personal lending per adult in Great Britain in 2013 was £602. Lending per adult in the lowest 10 per cent of postcode sectors was around two-thirds of this figure or less, whereas in most of the highest 10 per cent of postcode sectors lending per adult was around a third or more above the median figure. Data suggests that average personal lending tends to decline as the area’s deprivation level rises.

• Average median SME lending per business in Great Britain in 2013 was £47,072 with lending per business in the lowest 10 per cent of postcode areas below £35,000 and in the highest 10 per cent of postcode areas lending per business was over £68,000.

But this is not sufficient to support effective intervention to tackle under-served markets.

The study concludes that although the UK is now a world leader in disclosing area-based lending data, the existing data sets need to be strengthened and broadened to allow detailed and insightful analysis of which of the UK’s communities are under-served by the UK’s main high street banks.

The Parliamentary Commission, commenting on the voluntary framework, stated that ‘It will be important to ensure that the level of disclosure is meaningful..’ and that ‘the devil will be in the detail of the disclosure regime’. CIC has always and continues to welcome the significant step in bank transparency represented by the existing framework. But we believe that the quality, detail and type of data disclosed needs improvement for it to be able to identify markets and areas poorly served by the UK’s banks.

Jennifer Tankard is Director of the Community Investment Coalition

A transactional bank account
A savings scheme and insurance
Affordable credit
Physical access to bank branch facilities
Independent money management advice.

It sets out the action it believes is required by regulators and politicians to achieve this goal.

The Charter was launched at a briefing session in the House of Lords.  Hosted and chaired by the Bishop of Birmingham, speakers included Guy Opperman MP, Lord Sharkey and Lord McFall of Alcluith.  Other guests included MPs, Peers and financial services sector industry representatives. You can read and download the Charter here.

CIC will continue to campaign for implementation of the key actions set out in the Charter.

To support the Charter, CIC partner Local Trust released a video and case study setting out the problems faced by local communities who struggle to access basic financial tools.  You can watch the video and read the case study here. You can also read the blog that Jennifer Tankard, the lead of the Community Investment Coalition, wrote for the Barrow Cadbury Trust on community banking and the Charter on the day of the launch.

Have you ever tried to survive for a week without something you think is essential to life? Chocolate for lent, booze after Christmas, cakes before your summer holiday?  What if you had to live without access to basic financial tools for a week?  Without access to a transactional bank account, so that you could only pay bills in cash and in person?  Without any form of savings so that the simplest set back meant a trip to high cost credit providers? Without insurance so that something lost is lost for good not lost until a replacement arrives?

Access to basic banking facilities is an essential part of modern life, as employers and government agencies move away from cash and cheques towards electronic payments.  Small and micro businesses are also affected by difficulties in accessing basic affordable financial tools, often relying on easy access to bank branches to bank cash safely.

Effective tools for savings, payments, and accessing credit and insurance can help people to climb out of poverty or get through a crisis or emergency without falling into debt.  They can help businesses survive and grow and not slide into bankruptcy should a crisis occur.

The UK has made real progress in ensuring that most adults have, at least, some form of bank account. It is estimated that only 3% do not.  This is broadly in line with European neighbours such as Germany, France and Slovenia.  It also compares well with others such as Poland (30% without access to a bank account) and Italy (29%).  Still the 3% in the UK, some three million individuals, are effectively financially excluded by a lack of access.   And access to other types of financial tools remains patchy.  59% of UK households have savings of less than £5,000 and 56% of the poorest households do not have home content insurance. The reliance by many on pay day loans to get them to the end of every month is well documented.

A recent experiment in America organised by the Chicago based Center for Financial Services Innovation gave a group of white collar workers tasks to perform without using mainstream financial services.  These included buying a pre-paid card and cashing a cheque. Needless to say it wasn’t a happy experience.  The cost of transactions, the time spent in queues and the lack of security of personal data took participants by surprise.

This is why the Community Investment Coalition (CIC) is calling for a radical new approach to financial inclusion.  We believe that every adult, household and business should have access to a basic package of fair and affordable financial tools to help them participate in economic life.  These tools are: a basic transactional bank account; a savings scheme; access to affordable credit; physical access to branch banking facilities; insurance; and independent money management advice. We have launched a Community Banking Charter calling for the provision of these basic financial tools and setting out the steps required to achieve these.

Achieving this radical change does not require radical measures.  Political leadership, capital investment, better local partnership working and asking the main retail banks to step up to the plate are some of the steps needed.

The experience of the American white collar workers is shared by ordinary people every day in the UK.  CIC partner Local Trust commissioned a video detailing how a lack of access to basic financial services impacts on everyday life.

The UK’s emergence from recession will not result in a rush by the financial services sector to move into new markets in poorer communities.  Many people will benefit from economic growth.  But those without access to key financial tools are likely to get left even further behind.  We need radical change.  And it needs to happen now.

Jennifer Tankard leads the Community Investment Coalition (CIC) and is Director of Advocacy and Research at CDF.

A Better Kind of Banking, supported by the Barrow Cadbury Trust, proposes that the main banks’ business model based on ‘free banking’, alongside a banking culture that has encouraged managers to pursue profits at the expense of their customers’ needs, is greatly flawed. The report highlights alternatives to this approach that illustrate how banks can work with customers to enable them to manage their money more carefully and intelligently.

Authors Charles Leadbeater and Antony Elliott look at four banking innovators that could transform the banking industry if they were taken into the mainstream. thinkmoney has a customer base of 100,000 who pay a monthly fee for a service which guarantees that they will not go overdrawn, ensuring that they do not pay charges for unauthorised overdrafts. Secure Trust Bank help customers set up a current account which is used to pay direct debits and standing orders for regular bills, but no debit card is provided. Customers are instead given a prepaid Mastercard which they can upload their spending money onto. Saffron Building Society encourages people on modest incomes to save by allowing them to track progress toward a goal and get regular encouragement to do so. And the Capital One Progress Card rewards people with lower interest rates on their debt as they pay more money off.

The report points out that these innovations come out of the margins as opposed to the mainstream. It argues that banks need to alter their business models and adopt higher standards to create a better banking system.

Read the full report here.