Edinburgh Futures Institute researchers are collaborating with partners across the Scottish FinTech sector to develop data-driven solutions to democratise financial advice, help people to manage their money and access essential benefits and affordable lending.
Billions in benefits go unclaimed in the UK each year by people unaware of their entitlement to support. “The UK government, devolved governments and local authorities combined now offer more than 50 different types of benefits. It can be difficult for people to know where to start” explains EFI’s Dr Raffaella Calabrese.
Since the beginning of the coronavirus pandemic, more than three million people have applied for Universal Credit. With economic forecasts predicting a significant fall in GDP growth during the rest of 2020, that number will almost inevitably rise. However, Manuel Peleteiro, Founder and CEO of Edinburgh-based Fintech company, Inbest, believes the complexity of the application process means many people will continue to miss out on benefits they are entitled to. “People with limited financial education often struggle to complete the complicated and lengthy forms required to apply for benefits and to provide the financial records they need to support their applications” he argues. “Individuals’ economic circumstances are also volatile, especially during times of economic crisis, and the responsibility the system places on them to keep track of their entitlement can be overwhelming.”
Tackling financial exclusion
Together, Raffaella and Manuel are working with partners across Scotland’s FinTech community to address this critical element of financial exclusion. Closely linked with poverty and social exclusion, this situation arises when people find it difficult to access and use mainstream financial products, such as bank accounts and credit. Since 2017, their collaboration has used data-driven insights to develop Inbest’s banking personalisation platform, which helps banks and other financial institutions understand and serve their customers better. The platform supports customers to ensure they have enough money to sustain their current lifestyles and pay for unexpected events and build adequate long term savings for retirement. It also alerts them to their financial vulnerabilities.
Their latest project, the Benefits Calculator, uses this ‘engine’ to help people identify and access benefits they are entitled to. It compares financial information individuals consent to share through open banking, which lets FCA-approved organisations digitally access banking records, with the earning, spending and saving patterns of comparable consumers to identify gaps in their finances. The tool then cross-references this information with users’ demographic details, such as marital status and number of children and the latest government benefits information to establish their entitlement to UK benefits such as Universal Credit, Pension Credit, Child Benefit and Council Tax Reductions. The Benefits Calculator can also complete application forms, which users can then download, review and send. Once users register, the tool continues to monitor their financial circumstances and can send them notifications to update their benefits information when changes alter their entitlement.
Inbest’s experts say the combination of income maximisation and smoothing these tools support can have a decisive impact on improving the financial security and resilience of vulnerable households. “The income benefits module can help a single mother to build-up a rainy-day fund worth more than £8,900 in just one year. That’s equivalent to 17 times their monthly expenses,” Manuel explains.
Developed with support from Advice Direct Scotland, the white label tool, which organisations can integrate into their existing systems under their own branding, is also the first to incorporate the latest information on benefits in Scotland, which can differ from England and other UK nations.
Democratising financial advice
Advice Direct Scotland’s money advisers will start using the Benefits Calculator in summer 2020, alongside Scotcash, the not-for-profit community interest lender. The Glasgow-based specialist in affordable loans and money management advice for people on low-incomes believes the Benefits Calculator is a critical step in creating a digital independent financial advisor for people whose circumstances typically exclude them from accessing this support. “Digitisation has transformed customer expectations. Three years ago, we managed 100 per cent of our applications for affordable credit face-to-face. Today, 98 per cent are online. This switch has brought about enormous benefits in cost savings and efficiencies we can pass on to our customers” explains Scotcash CEO Sharon MacPherson. “Nonetheless, it creates challenges for our lending managers’ to replicate the bespoke in-person service they offer to not only help people access lending but also provide advice on debt, financial planning, banking and saving. This support is vital to address financial exclusion. The Benefits Calculator is an exciting prospect because it allows us to offer the bigger-picture support our customers need digitally. By using it alongside credit reference agency reports, we will be able to provide advice tailored to their circumstances. In cases where we are unable to offer an affordable loan as a result of information from credit reference agencies credit reference agencies decline applications, it will help our loan managers to identify other financial support available, which, in many cases, may be more sustainable for them. This offers our loan managers a critical overview of applicants’ financial health which they can use to make the right advice decision. Crucially, because it keeps track of users’ changing financial circumstances, in the future, it may create opportunities to offer customers proactive advice if their finances deteriorate, such as is if they become unemployed. When their situations improve, it could also help us offer new affordable loan and other financial products.”
A community response
Part-funded by the Data-Driven Innovation initiative through its plan to boost recovery after the pandemic, Raffaella and Manuel’s collaborations with Advice Direct Scotland and Scotcash came about as a response to the priorities underlined by the Scottish FinTech Consumer Panel. FinTech Scotland established this industry group to support inclusive fintech business development by connecting citizen advocate groups into the FinTech ecosystem. FinTech Scotland’s Strategic Development Director, Nicola Anderson believes the Benefits Calculator demonstrates the potential of bringing these groups together as a community to address urgent challenges. “Using focused research and data analytics, this collaboration will help people in real need during this time of crisis. It’s another great example of how inclusive innovation in financial services can deliver good outcomes for people and society” she says.