The gaping holes in the hole-in-the-wall strategy
Banks are failing poor areas and missing opportunities at the same time, says Kevin Sugrue
New Start magazine
The Royal Bank of Scotland’s recent announcement that it will install 300 free cash machines in some of the most financially excluded areas is a small but welcome acknowledgement that not only does the market ignore the social good, it sometimes fails completely.
Over the past few years we’ve seen banks and building societies far too ready to pull out of so-called ‘deserts’. But if anything poor people rely more on cash than the banks’ more wealthy customers, and there is still a demand for cashpoints in poor areas.
This demand has been met by a huge growth in charging ATMs that can cost up to £1.80 per transaction. That’s a lot if you’re only withdrawing £10. It’s those on low incomes, benefits and tax credits who get hit hardest by market failure.
Credit unions are part of the solution and organisations that work in deprived areas have been generally quick to support them; my company, Renaisi, is proud to be associated with the Hackney Credit Union. Credit unions can play an absolutely vital role in providing affordable banking. But it would be better to address the problem of market failure in the first place.
Could the private sector’s financial models be wrong? It seems unlikely. More plausible is the notion that private sector managers simply fail to believe, or act on, the data they have. I’m reminded of the cable TV companies back in the 1980s and 90s that were slow to realise that the demand for their services was equal, if not greater, in working class communities than middle class ones. The vacuum was filled by satellite TV – nowadays it’s a rare council block that isn’t bristling with satellite dishes.
And when Waitrose and John Lewis moved into Canary Wharf they were taken by surprise, not by the demand during the week from the city bankers, but by east London’s previously ignored middle class wanting something to spend their money on at the weekend. And yet only a few weeks ago, the last M&S closed its doors in Newham. It’s very hard to believe that there isn’t a vibrant Asian and black middle class in Newham that would shop at M&S – if it was easily accessible, and crucially, catered to their tastes.
I have spent a lot of my spare time coaching young people in football. As you might expect in London, the players are from a rich mix of backgrounds, but most of them would come from areas seen as ‘deserts’. But what disposable income the kids have tends to go on fashionable clothes and the latest electronic gizmos: twenty years ago the demand was for was box-fresh trainers, now it’s PS2s and 3G phones that are all the rage.
There’s always been a voracious demand for the latest accessory among the young, regardless of their income. And some of the more commercially savvy companies appreciate that and cater to that market. But much of the more established private sector strangely cannot see what strikes me as blindingly obvious.
Too many banks and financial institutions throw easy credit around and put precious little back in return when people get themselves into serious debt. Not a day goes by without east London’s postmen and women struggling under the weight of pre-approved credit card applications targeted at deprived estates.
But hitherto there’s been a strange reluctance by the very same companies to provide those people with the ability to access their money free of charge. The market is failing, and there’s strong a case for intervention by the public sector.
Perhaps it’s time for local authorities to start using taxpayers’ money a little bit more discriminatingly under their power of economic wellbeing, and scrutinising their bankers’ commitment to tackling financial exclusion.
Kevin Sugrue is chief executive of Renaisi