HSBC UK recently became the first major bank to enable international customers to leverage their international credit history to apply for a UK mortgage application. While this represents a significant step forward, should financial inclusivity have moved further ahead by now?
Newcomers to the UK often face a number of hurdles and delays when applying for loans â particularly when trying to leverage their overseas credit history. In a move to resolve this issue, HSBC UK has launched an initiative that enables international mortgage applicants to do exactly that.
Previously, international customers had to obtain and translate their credit reports before the application process, which was often time-consuming and potentially costly. This new digital service, brings various credit bureaux connections together in one place, eliminating the need to find, approach, and complete requests to separate bureaux.
Ultimately, this move provides a more streamlined process for non-resident customers from Australia, Switzerland, the Philippines, and the US and those who have recently relocated to the UK within the last 12 months from one of 14 eligible regions.
While this is certainly a positive move, itâs not hard to understand why many in the industry, as well as a large number of consumers, are confused about why this type of service hasnât been more readily available in the past.
Time to rethink access barriers
Ivo Gueorguiev, co-founder of Paynetics
âHSBCâs recent move to accept overseas credit histories for UK mortgages is a strong start, but real financial inclusivity needs broader, tech-driven solutions,â explains Ivo Gueorguiev, co-founder at payment service provider Paynetics.
âWith over 20 million underserved adults in the UK, itâs time to rethink access barriers. Embedded finance is key â digital wallets and embedded lending integrated into everyday platforms make financial services instantly accessible to those left out by traditional banking.
âPublic sector-backed digital wallets could offer the unbanked a secure, easy entry point to financial services, while embedded lending through retailers enables responsible access to credit. By putting financial tools right at peopleâs fingertips, embedded finance is shifting inclusion from vision to reality â making financial empowerment possible for everyone.â
Tackling credit invisibility
Gregor Mowat, co-CEO and co-founder of UK credit builder Loqbox, also suggests that, while HSBCâs latest initiative is a positive sign, far more needs to be done to improve financial inclusivity.
Gregor Mowat, co-founder and co-CEO of Loqbox
âHSBCâs initiative to help international customers apply for a UK mortgage without a local credit history is a positive step, but itâs only a small part of the puzzle. Itâs currently limited to certain countries, meaning itâs not fully inclusive and leaves many people still facing the challenge of credit invisibility.
âFor those moving to the UK, not having a local credit history can be a major barrier when trying to access financial products like a mortgage, even if theyâve been financially responsible elsewhere. While HSBCâs service allows some international customers to transfer their credit history, many others remain left out, and thatâs a glaring gap that needs addressing.
âThe wider issue of credit invisibility also doesnât just impact newcomers to the UK but people who have lived here for years without ever building a traditional credit profile. This leaves them trapped in a cycle where theyâre paying rent, often more than they would on a mortgage, but unable to access one due to a lack of visible credit history. It also prevents them from accessing loans or other financial products that could help them improve their financial situation.
âWithout better pathways to build credit, these individuals remain stuck, unable to break free from the limitations imposed by their lack of credit history. Solving credit invisibility requires more inclusive and creative solutions that open up financial opportunities for everyone, not just a select few. Then weâll make real progress.â
âInclusivity requires innovationâ
Iana Vidal, head of UK public policy at Clearpay
âFinancial inclusivity requires innovation that keeps pace with the rapidly evolving needs of consumers. At Clearpay, we believe that payments innovation is crucial to allow inclusivity,â explains Iana Vidal, head of UK public policy at buy now, pay later provider Clearpay.
âImproving inclusivity means rethinking outdated regulationsâ particularly in the consumer credit market. Many elements of the Consumer Credit Act, now 50 years old, no longer reflect modern consumer behaviour, which is now largely digital.
âFintechs, alongside banks, must lead the charge in driving regulatory reform that supports new and accessible payment solutions. Through collaboration with policymakers, we can build a financial ecosystem that empowers all consumers, ensuring they can access financial solutions that allow them to participate fully in the economy.â
Banks must leverage the wealth of data available to them
For Steve Round, co-founder and chairman of core banking platform SaaScada, and chair of the governing board forum at the Global Alliance for Banking on Values, the solution lies in banks utilising far more data than they currently do.
Steve Round, president and co-founder of SaaScada
âWe live in an international society and itâs encouraging to see HSBC recognise this reality. Too often, financial inclusivity is a buzzword with few tangible results, or a means of offering second-class financial products which arenât tailored to consumer needs.
âWhen delivering financial inclusivity, banks must aim to offer first-class products to all â including customers who donât meet single-metric measures of eligibility in traditional banks. They must also use other data, such as rental payment history in the UK, to assess consumersâ suitability for mortgages. You can pay your rent on time for 10 years but this information will be ignored by banks and credit reference agencies â if FS institutions can monitor international financial history, why canât they do more domestically?
âAs more people feel the pinch of rising living costs, financial services firms must build a complete picture of prospective customers, using real-time data to accurately assess eligibility. This will help banks make informed decisions, improving access to finance for vulnerable consumers and underbanked communities, such as immigrants, while also reducing risk of default for the lender. By better understanding customers, banks can make the step from offering âinclusiveâ products to driving real inclusivity, inciting positive social change.â
Overcoming systemic bias
Bias is still rife across all parts of financial services, says Liyyanah El-aidouni, transformation lead at lender MPowered Mortgages. She says that these biases must be overcome in order to improve financial inclusion.
Liyyanah El-aidouni, transformation lead at MPowered Mortgages
âWe believe the fastest and most effective way to boost financial inclusivity, and achieve fairer outcomes for customers, is to overcome systemic bias in decision-making. Demography alone is widely held to cause credit gaps. In other words, some people still find it harder to get credit because of who they are, not their suitability for credit.
âAll too often these gaps can be traced back to legacy underwriting processes which typically include some degree of person-led interpretation of criteria. This human factor can make the decision-making process more vulnerable to inconsistencies caused by fatigue and peopleâs unconscious bias.
âHowever algorithms are only as fair and bias-free as the way they are written. Fortunately in the UK, unlike in the US, regulations require algorithmic-based decisions to be completely explainable.â
Utilising BaaS
The fintech industry is already providing more financially inclusive solutions, explains Jovi Overo, managing director of Unlimit BaaS.
Jovi Overo, managing director of BaaS at Unlimint
â4.4 per cent of the UK population (2.5 million people) work in the gig economy, making it increasingly important to provide financial products which accommodate the varying income patterns that these new ways of working bring. Those with inconsistent incomes will benefit significantly from the flexibility BaaS offers.
âBaaS-enabled dynamic credit limits allow credit terms to be adjusted using real-time financial health indicators. Enabling the provision of more responsible borrowing options for consumers, which helps protect societyâs most vulnerable from debt traps, and enables them to begin participating in the economy more meaningfully.
âBaaS can enable credit building too. Those employed in unconventional means often struggle to build credit through conventional methods. BaaS providers can help solve this problem through innovative credit-building features, such as reporting recurring payments on consumerâs rent or bills, or offering them small, manageable credit-building loans. Vitally, these products allow individuals to establish a credit history on terms better suited to their financial situation, rather than being beholden to providerâs terms.â
Inclusivity benefits banks too
Finally, Simon Taylor, director of financial services at Yonder Consulting, explains that banks can also reap the benefits of providing more inclusive services.
âWider efforts around financial inclusion, specifically for banks like HSBC, show they understand the need to have a purpose that goes beyond just providing financial products. Banks have a responsibility within the wider community to give people things like financial education and innovative digital services, to be inclusive of vulnerable people or even the âunbankedâ.
âBut financial inclusion initiatives are also a way for retail banks to build trust and transparency with customers â which means this isnât just an opportunity for banks to bolster their reputation, but also an opportunity to do more for society.
âFor example, thereâs obviously a lot of talk right now about the closure of bank branches, switching to digital services and ensuring a large part of the community isnât being left behind. Digital services canât replace the physical branches, but they can certainly help people who donât want to travel tens of miles to get to their branch â but banks need to ensure these people are educated on how to use these services.
âBanks are starting to realise that in order to stay relevant in the modern world, they have to treat their customers as real people with real issues. The Consumer Duty Act has played a key part in financial inclusion â not just in having transparent communication with customers, but also in opening up access to certain services like mortgages, credit cards and current accounts. If banks can help become a part of the solution, they can ensure they remain a key part of their customerâs lives.â
The post HSBC Now Accepts Overseas Credit History, But Why is Financial Inclusion Seeing so few Advancements? appeared first on The Fintech Times.