Basic bank accounts: a welcome step towards long-term financial inclusion in the UK

Nine of the biggest UK banks and building societies are legally mandated to offer basic bank accounts. A mystery shopping exercise by the FCA has found a third of experiences with these accounts – which exist to serve people not otherwise able to access standard current accounts, providing access to essential services with no fees and no overdraft –rated as poor or very poor. To address this, the banks and building societies have agreed to individual improvement plans.¹

“Bank accounts are important for financial inclusion, and this is about making sure the very people who could benefit from basic bank accounts are not missing out” 
– Emad Aladhal, director of retail banking, FCA ¹

Access to payment accounts is critical for consumers, yet the retail banking industry has long been impacted by barriers to the financial system that have created real harms and inequalities, impacting everything from the ability to access government funds to simply making and receiving everyday transactions.

The FCA’s announcement signals a clear change and has the potential to make a genuine difference. Its Financial Lives survey in 2024 found that, while over 97% of UK adults had a current account and 4.3 million UK adults had a basic bank account, around 0.9 million adults were unbanked (they had no current account). Furthermore, in the two years to May 2024, 10% of the 1.3m adults who recalled applying for a basic bank account said they were declined.²

The commitment from the biggest banks to improve poor practice is essential given the history and variety in customers’ experience. Alongside the regulator’s continued focus on Access To Cash, this is a welcome and important move from the industry.

Although basic bank accounts are costly for banks to provide, with limited balances offering little opportunity for net interest margin and almost no fee income, the biggest institutions already have the systems, infrastructure and operational capabilities needed to support them at scale.

The challenge is therefore less about technology or investment, and more about policy and commercial priorities. There are already examples of banks successfully supporting customers with no fixed address, no credit history or non-standard forms of identification, demonstrating that these barriers can be overcome.

Banks now have an opportunity to improve how they identify and support customers throughout the account-opening journey. Rather than simply declining applications, firms should do more to signpost customers towards appropriate alternatives with clearer guidance for those researching their options.

There are plenty of opportunities for the bigger UK banks to leverage channels beyond digital, particularly those with branches and contact centres have the opportunity to support vulnerable customers in a variety of ways.

For many customers, a basic bank account is the first step towards financial stability, financial education and long-term financial inclusion. By adopting a ‘lifetime customer value’ view, banks have the opportunity to assist customers with non-standard needs to become mainstream customers over time, putting them firmly on the path to long-term financial stability and self-sufficiency.

AI tools have a role to play here in  building a consistent and comprehensive view of customer relationships, credit positions, vulnerability triggers and contact histories. This would open the way for a more impactful assessment of individual customer needs and how existing products, including basic bank accounts, might meet their requirements.

AI can take on much of the 'heavy lifting', freeing up time-pressured bank staff to focus on helping customer navigate the process, while also acting as the vital 'human in the loop' to ensure the application of consistent treatment strategies and alignment with risk appetite and policy, and using their expert judgement to fit the product to the need.

¹ https://www.fca.org.uk/news/press-releases/banks-told-improve-access-basic-accounts

² https://www.fca.org.uk/publication/financial-lives/fls-2024-retail-banking.pdf