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Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

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The fallout of the banking crash and the related bailout conveniently pushes an issue in to the background that has been the focus of some considerable, albeit woefully inadequate, initiatives by the Government and banks: that of the unbanked.

In the past 5 years, the Government has convinced banks to introduce a Basic Bank Account (BBA), a current account without cheque and credit facilities. This would enable clients with a bad or no credit history to open up a bank account. More importantly, the BBA is also accessible through Post Offices – but stopping short of allowing the Post Office to run a bank itself. This is despite the fact that the Post Office enjoys the trust of people on low incomes, and a Post Office Bank would be ideally suited to promote financial inclusion as we argue in a recent report.

Initially, 800,000 BBAs were opened, but more recently, the number of people without a BBA or current account has risen again to 3m. This points to a fundamental flaw in the system – banks’ lack of incentive and willigness to cater for the low income market. The current crisis offers an opportunity to rectify this, but we need to break a taboo: paying monthly fees for our bank accounts. Although it sounds counter-intuitive, for the unbanked, paying an adequate fee for a transparent cost structure is a bargain.

Not having a bank account is expensive. The unbanked pay a poverty premium of around £1000 per year. They pay their bills in cash, and use pre-pay meters for gas and electricity. Many companies charge higher prices for bills that are not paid by direct debit, and pre-pay tariffs for gas and electricity are also higher than the standard ones.

So why do they not open an account?

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.