Earlier this week, we wrote about Popcash, FutureGov’s simple app to help manage complicated personal finances.
The idea behind Popcash was to point people to more responsible loans, encourage better money management, and build financial literacy and resilience.
To test our ideas, we delved into the world of Credit Unions, personal finance, and money management to get to grips with where the real problems lay, and identify what an accessible and useful mobile product to support this could look like.
We spent time with Credit Union staff, members and board members, collected people’s stories of debt, met with and interviewed a number of experts in community finance, debt and debt management, welfare reform, social housing and alternative banking technology, and immersed ourselves in the most recent literature we could find.
Here are just some of the lessons learned through our research, though many more are detailed in our research report. For a copy of the report, please get in touch.
People often donʼt know what they owe
While itʼs easy to check your bank balance, knowing where you are with repayments seems much harder. People can tell you what they borrowed and how much they pay monthly, but very few seem to have a handle on where they are with repayments or when a debt will be paid off.
Added to this is the changing nature of debt – the impetus to pay up that payday and doorstep lenders bring seems to be changing the way people view longer-standing debts such as credit cards / store cards / overdrafts.
While someone may be able to tell you what they pay the Provident man every week, itʼs far less likely they know the same information about what they pay the bank for their overdraft.
Make it easy for people to manage their personal information
Credit Unions and other creditors talked about how difﬁcult it was to stay in touch with people – and get them to stay in touch with you. We came across several instances of people whose bank accounts were registered at a parents address, people who changed mobiles – and mobile numbers – on a relatively regular basis, and people who refused to open letters or answer calls.
We have heard of – and seen – several situations where bags of unopened letters are shoved behind the sofa, and one support service told us that they wonʼt ever call from a landline as they know it will be assumed they are a creditor.
Credit Unions lack an appetite for ’paydayʼ loans
We came from the assumption that as the public were so used to the payday loans model now (one interviewee referred to it as ʻtaking out a Wongaʼ), that helping Credit Unions get into this market would be a beneﬁcial step as they can massively undercut the 5000%+ APR of the competition whilst also supporting saving.
What we discovered was that Credit Unions have very different views on payday loans, with many feeling that the model behind fast repayments goes against their ethos to teach responsible ﬁnancial behaviour. Several told us they would prefer to give larger amounts of money over longer periods of time.
Also, due to the current APR cap of 26.8%, Credit Unions make a loss on servicing small loan amounts: on a loan of £300 for one month they can only charge a maximum £6 interest.
Change is going to be slow
Our research began at around the same time as the DWP-funded Credit Union Expansion Project (being run by ABCUL, the largest Credit Union trade body), which is developing updated backend and front-facing systems for Credit Unions over the next 18-24 months. As we met with Credit Unions around the country we heard them talk of expectations for dramatically increased membership over the next few years, but little in the way of development to serve this.
With two of the largest issues for Credit Unions being awareness and access, the Expansion Project has a long way to go to make change in this area, especially considering only a very small part of the £38 million budget has been set aside for a marketing and media campaign.
With a digital world that is moving at rapid pace, and increased opportunity for the likes of community banks due to legislative changes, there is a very real risk that Credit Unions could be outpaced by newer entrants to the market.
Debt sometimes starts with the banks
Whilst our feelings on Wonga and other riskier ﬁnancial organisations remain the same, what was glaringly obvious through our research was that another related problem comes from high-street banks. Banks are quick to offer overdrafts and credit cards ut give limited advice on money management and charge very high fees to account holders, many of whom are still teenagers with limited understanding of banking practices and charges.
Time and again we heard stories of people whose debt problems have grown out of late payment and overdraft charges from their high-street bank, which are often the start of a downward spiral into a life of managing interest repayments but never managing to pay off debt.
An interviewee in her early 20s described how she hasn’t had a bank account for the past 3 years because she got into a lot of debt through credit cards and overdrafts when she was 18 and owes money to three different banks. She now has bad credit rating, a couple of CCJs (county court judgements) and though she works in Tesco is unable to pay off her debts.
Another interviewee talked about her son’s debt problems, beginning when he was 16. He was allowed to open a bank account with an overdraft, which he started to use even though he didn’t need it – “I wish banks would decline your card when you don’t have money.”
Anecdotes like these are coupled with the fact that among low income consumers, four million incur bank charges and up to seven million use sources of high cost credit.
Through this research and other insights, we discovered that there is a real need for a proactive, engaging and easy-to-use money-management solution that intuitively puts the knowledge for decision-making directly into peopleʼs hands, enabling them to feel in control and more connected to those they have ﬁnancial relationships with.
Our answer is Popcash, a simple app to help manage complicated personal finances.
We’ll be building the Popcash prototype as part of Lewes and Eastbourne Lab, as well as seeking the next round of funding to take the prototype to a full product.
If you’re interested in knowing more about Popcash, helping to shape it, test it and make it happen, let us know by getting in touch with Dominic Campbell. You can also follow @popcash on Twitter or sign up for our newsletter to hear more about Popcash.
Tags: tampa bay rays how i met your mother tupac Dick Van Dyke George Duke