I had the pleasure of joining a panel on access to responsible credit at the recent CCTA Conference, alongside experts on this issue from government and industry. It was great to hear the views and suggestions of my fellow panellists, in particular the importance of collaboration and the potential for partnerships between mainstream and alternative lenders.

As I said at the conference, the FCA recognises the importance of credit in people’s lives, to help people manage their finances and short-term or unexpected cash flow issues. We want to support access to credit for those who can afford it, as we set out in our Dear CEO letter on the ‘FCA Strategy for Consumer Lending’ issued earlier this year.

Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate. Let me set out what that looks like in practice.

Financial inclusion is a priority

At the FCA we’ve made financial inclusion a priority – this is something we are doing across the board, not just in credit but in access to cash, insurance and investment advice.

As Nikhil, our Chief Executive, said at StepChange Connected recently, affordable credit helps consumers manage their finances and short-term or unexpected cash flow issues. If you are outside the financial system or cannot access credit, you’ll find it harder to get back on your feet when things go wrong – like the sudden expense of a car or appliance failing.

Our goal is to maintain effective regulation and allow space for the credit market to grow and innovate.

Contraction in the high-cost market may have made credit harder to access for some financially vulnerable groups. But we do not want people turning to illegal money lenders.

So, we need to take a balanced and consistent approach when we engage with firms. We need to balance inclusion with ensuring that firms lend responsibly. We don’t want to see consumers being given credit that they cannot afford to repay. For some consumers, credit will not be the right answer.

We care about financial inclusion and use our tools, powers and influence to improve access and the treatment of customers, prioritising our efforts in areas that have the greatest impact.

Collaborating widely

Access to affordable credit is not something that the FCA, or any other body, can solve alone – it requires a collaborative approach. All of us, including trade bodies and firms, have an important role to play in engaging on this topic and working together to find ways to tackle this issue.

By using our convening power to foster collaboration and innovation, we have brought together government, industry, trade bodies, researchers and other stakeholders to encourage initiatives that support access to affordable credit. This has resulted in some tangible change. For example, we worked with government to make it easier for registered social landlords to direct tenants to affordable credit.

The FCA sees an important role for innovation in developing solutions which tackle financial exclusion. We work closely with Fair4All Finance to explore ways to encourage the supply of affordable credit to lower income consumers. In November 2023, alongside Fair4All Finance, we hosted an affordable credit workshop to explore how non-mainstream credit providers can develop sustainable business models, save costs, encourage investment and reach customers.

This resulted in a set of actions for industry that we and Fair4All Finance are supporting to help increase access to credit. We and Fair4All Finance also ran a further affordable credit workshop in November (which the CCTA attended) to maintain momentum and consider what else could be done.

We also foster innovative solutions to tackle exclusion, for example through our sandboxes, which allow firms to roadtest innovative products and services. We have also run a ‘techsprint’, bringing organisations together to develop innovative solutions to tackle issues faced by those who struggle to access everyday financial products such as a bank account or credit.

It is important to look internationally and learn from the experience of others. We are engaging with international regulators on lessons learnt, and as a member of the Organisation for Economic Co-operation and Development (OECD) consumer protection committee, we work closely with and share insights with other regulators.

We also monitor activities round the world and use their findings and reports to inform our thinking. For example, India’s unique biometric ID system ‘Aadhaar’ has enabled over 85% of India’s underserved communities access financial services through Aadhaar-enabled payment systems. It has done this through also including AI-powered voice access, targeting those with limited literacy and internet access. These are all innovations which can help provide insights and build on our work.

The commercial sector

There is a role in the market for all firms who lend responsibly. As I said on the day, this includes the commercial sector who play an important role in ensuring customers whose needs are not met by mainstream lenders have access to credit.

We have recently held a series of roundtables with trade bodies and firms specifically looking at the ‘high-cost’ credit market – to help us better understand barriers to growth and explore how we can support innovation.

We are currently bringing together all feedback to determine where we can make a tangible difference. A big thank you to the CCTA and all others that took the time to share their thoughts with us.

How will we know whether all these initiatives have worked? What does success look like? To me, success would be a well-functioning credit market that serves a wide range of people, with engagement and innovation having improved access for harder to reach customers and where firms can support effectively all consumers in achieving their financial goals.