AI: making banking and advice accessible for the underbanked

A guest editorial by Fraser Stewart, co-founder of Lyfeguard

Millions of people in the UK are excluded from accessing essential financial services, trapping them in a cycle of vulnerability and limiting their opportunities for a better life. These individuals, often referred to as the “underbanked,” struggle with low incomes, limited access to technology, or a lack of trust in traditional institutions. This exclusion creates significant barriers to accessing the financial guidance they desperately need to navigate an increasingly complex financial landscape.  

Artificial intelligence (AI) offers a powerful solution to this challenge, with the potential to break down these barriers and democratise access to financial advice. This article explores how AI-powered tools can provide accessible and affordable solutions, empowering the underbanked to take control of their finances and build a more secure future. 

The current landscape 

The underbanked in the UK face numerous obstacles when seeking financial advice. Cost is a major deterrent, as traditional financial advisors often charge fees that are simply out of reach for those on low incomes. Geographical location can also be a barrier, particularly in rural areas with limited access to financial institutions. Furthermore, a lack of trust in traditional financial institutions, often stemming from past negative experiences or fear of complex financial processes, can prevent individuals from seeking help. While government programmes and charities offer some support, their resources are often stretched thin, and they struggle to meet the overwhelming demand for financial guidance. This is where AI can step in, offering a cost-effective and accessible alternative. 

Accessibility 

For many underbanked individuals, accessing essential financial services is a significant challenge. Traditional banking systems often fail to cater to their needs, leaving them excluded and vulnerable. This exclusion can take many forms. Some struggle to open basic bank accounts due to a lack of traditional identification or poor credit history, while others find themselves unable to access affordable credit or loans. Physical bank branches may be located far away, particularly for those in rural areas, and many individuals lack the digital literacy or access to technology needed to navigate online banking services. AI offers a powerful solution to these accessibility challenges. 

AI can help address the lack of access to financial products by facilitating easier account opening. AI-powered identity verification tools can validate a wider range of identification documents, including foreign passports, asylum-seeker documents, and biometric IDs, making it easier for those without traditional identification to open accounts. Furthermore, AI can enable more inclusive credit scoring by analysing alternative data points, such as utility payments and mobile phone usage, to assess creditworthiness. This opens access to credit for those with limited credit histories who might otherwise be excluded from traditional credit scoring systems. 

AI can also improve access to financial services themselves. While digital exclusion remains a significant barrier for some, AI can play a role in bridging this gap. AI-powered chatbots and virtual assistants can offer 24/7 access to financial information and guidance, regardless of location. These tools can answer questions, provide budgeting tips, and even offer personalised savings recommendations, all through a simple, conversational interface accessible on mobile devices. This can be particularly beneficial for those who lack access to physical bank branches or struggle with digital literacy. Furthermore, AI can power user-friendly interfaces and personalised support tools that make online banking more accessible and less intimidating for those with lower digital literacy, guiding them through the process and helping when needed. 

Affordability 

One of the most significant advantages of AI is its ability to reduce the cost of delivering financial advice. AI can automate many of the tasks traditionally performed by human advisers, such as data analysis, risk assessment, and basic financial planning. This automation significantly lowers operational costs, making it possible to offer financial guidance at a fraction of the price of traditional services.  

Furthermore, AI can personalise advice delivery, ensuring that resources are allocated efficiently and that individuals receive the specific guidance they need. This approach maximises the impact of limited resources and ensures that the underbanked receive the most relevant and effective advice.  

This cost-effectiveness also extends to the provision of financial services themselves. Technology enables banks to offer low-cost accounts or even free basic services, appealing to those who may not be able to afford high fees. AI can also strengthen the business case for less profitable services such as microinsurance and small loans by reducing the administrative burden and cost, making them viable for both providers and consumers. 

Concerns and challenges 

While the potential of AI is immense, it’s crucial to acknowledge and address the potential risks and challenges. Data privacy is a paramount concern, and robust security measures are essential to protect sensitive financial information. Algorithmic bias is another potential issue, and developers must ensure that AI algorithms are fair and unbiased, avoiding the perpetuation of existing inequalities.  

Finally, while AI can provide valuable guidance, it’s important to recognise the limitations of technology and the continued need for human interaction, particularly in complex or emotionally charged financial situations. Clear guidelines and regulations are crucial to ensure responsible AI implementation and protect consumers. It’s also important to address the digital divide, ensuring that those without internet access are not left behind and can still access essential financial guidance and services. 

A more accessible future

AI has the potential to revolutionise financial inclusion in the UK by bridging the advice gap for the underbanked. By providing accessible and affordable financial guidance, AI-powered tools can empower individuals to take control of their finances, build long-term financial security, and escape the cycle of financial vulnerability. Realising this potential requires collaboration between policymakers, financial institutions, and technology developers. By working together, we can harness the power of AI to create a more equitable and inclusive financial system for all.

Image: Lyfeguard

Guest Editorial This article was produced specially for Fintech Intel by an expert guest contributor.