There is a gap between access to financial services and the public’s ability to use them effectively, according to the FCA's chief executive, who stated that "inclusion is about more than simply opening the door to new products".
Speaking at a Fair 4 All Finance conference, Nikhil Rathi said increased access alone doesn’t guarantee successful outcomes for individuals: "Those depend on financial capability: the knowledge, confidence and support to make good choices or avoid bad ones."
Rathi said that when financial inclusion and capability are "mismatched, it creates points of vulnerability - when small decisions carry big consequences".
He continued: "Over the past decade access to new products has exploded and yet while we have seen some improvement in capability the rate has not been anywhere near the same. That imbalance carries consequences.
Pointing to examples of financial capability, Rathi noted that one in 10 adults are not confident in their ability to identify a potential scam and fewer than 15% of consumers consistently pay down their highest interest balance first.
"These aren’t necessarily failures of personal responsibility or intelligence", Rathi said, but "the result of people reaching key financial decisions without the support, confidence, or tools to act well".
Asking why financial capability has lagged behind increased access, Rathi noted that rapid digitisation has played a massive role, adding that "capability is still too often treated as an add-on under community engagement rather than a key part of how firms design products and services".
Meanwhile, responsibility and risk for financial decisions is increasingly shifting to individuals, with Rathi pointing to auto-enrolment, credit offers and tenancy decisions.
He concluded: "We have made much progress on financial inclusion. But widening access without raising capability leaves people with more choices they don’t feel ready to make.
"If we lift capability to match inclusion, buffers rise; cover improves; more people save and invest with confidence; scams fall. And decisions are taken at the right time, for the right reasons.
"Inclusion gives people the tools, and the choice. Capability helps them to use those tools."
