It’s an obvious but universal truth that as retailers we rely upon our customers having access to the money required to buy the things we sell.
Sometimes this money comes from income or savings, but increasingly from some form of credit. Be that putting those new clothes on a store card or taking out an agreement for the latest mobile or, increasingly, using a credit card to pay for the weekly food shop.
One can look back with nostalgia to the ’good old days’, when shopkeepers appeared to know all their customers and were happy to let them have things on account until payday.
“For those with a good credit rating, some would argue that they have never had it as good as they do now”
For those with a good credit rating, some would argue that they have never had it as good as they do now. A decade of historically low interest rates, even taking into account the recent rises, has led to relatively lower mortgage and loan payments.
This has increased the proportion of some people’s income that would be classified as discretionary spending. In addition, the FinTech revolution has opened up a plethora of options for splitting a larger purchase into more manageable bite-size pieces, as long as a consumer’s financial digital footprint looks attractive.
However, things can be different for those with less than perfect credit files. They may have had problems with credit in the past or simply have a thin file - because they are young, new to this country, or have chosen not to borrow in the past.
Many of these people will find it impossible to access mainstream credit. The worry is that this leads to greater financial exclusion – a society of the haves and the have nots.
Yet many families in Britain are really struggling to balance their household budgets. Living is expensive and that cost is only going up. While wage increases over the past 10 years have remained depressed, electricity bills have increased by 11.4% in the past year, and food prices have increased by 4.3% in the same period.
In August, the UK inflation rate unexpectedly rose to its highest level in six months.
The value of credit
Credit plays an important role in our society. It allows individuals to cope when their income fluctuates - increasingly common with portfolio careers and zero hours contracts - while also making larger purchases possible.
There has been much speculation about where those people excluded from mainstream credit are going for loans, as the alternative credit market has contracted in the face of greater scrutiny and regulation. The answer for many, at least in the short term, appears to be that they have turned to their family and friends.
“Access to appropriate and affordable credit for all is an important principle”
The Financial Conduct Authority’s Financial Lives survey recently revealed that 7% of UK adults are borrowing money from their friends and family.
What can low-income families and individuals, unable to access the same credit opportunities as those in higher income brackets, do when they have no one left to turn to? It is clear that the demand for so-called ’high-cost’ credit is not going away. That is something I hear all the time from customers and colleagues as I visit our stores.
Access to appropriate and affordable credit for all is an important principle. Delivering it will require a collective will, new ways of thinking and in all probability the greater use of technology.
It will require an understanding of the lives of the millions of people excluded from mainstream credit and the underlying issues that they face. And, perhaps most importantly, it will require that we listen to them, rather than speak for them.