Self-employed struggle to access financial services. What can FinTech do?

By Gaia Lamperti

Over a quarter (28%) of the UK’s self-employed struggle to access the financial services they require, leading many to believe the current system works against them due to their employment status. The finding comes from new consumer research from open banking platform Tink.

According to the survey amongst 2,000 nationally representative UK adults, a stark 27% of self-employed people feel they have been actively discriminated against whilst trying to access financial services. In addition, a third of the self-employed (33%) believe their employment status has been an obstacle to them getting a mortgage, and a further 31% believe it has hampered their ability to obtain credit.

These sentiments are borne out in reality as more than one in six self-employed say they have been rejected while trying to secure a mortgage to purchase a home, twice as many as the national average of just 7%.  Some of the people surveyed are even struggling to be accepted for core personal banking services such as current or savings accounts.

How can FinTech help?

New technology platforms and marketplaces, like UpWork, Uber and Etsy, made self-employment a real option for many people, resulting in a rapid expansion of this segment which amounts to a workforce of about 4.8 million in the UK. Sole traders contribute an estimated £303 billion to the country’s economy, making clear the need for tailored, data-driven financial support for the self-employed.

This market opens an opportunity for financial services providers to give control back to consumers by enabling them to use their own real-time data to access a broad range of products and services. Delivering tech-based solutions can address key frustrations for the self-employed and add real value to the way they manage their finances.

Traditional credit checks combined with onerous, often paper-based processes to provide evidence of expenditure and income levels can be time-consuming, out of date and end in higher abandonment or rejection rates.

“Our research has exposed flaws in the current financial services system, with widespread feeling among many self-employed consumers that they are being denied access to financial services on the basis of their employment status. As such, there is a distinct gap between the service those who are self-employed require and the service they are currently receiving, as many revealed they have struggled to secure personal credit, loans or mortgages at a time when they need them most,” Tasha Chouhan, UK & IE Banking Lead at Tink, commented on the findings.

With open banking technology instead, financial services providers are able to use transaction data in people’s bank accounts to take a holistic approach to gathering insights on income and spending behaviours to inform creditworthiness and affordability – increasing financial inclusion and access, while removing unfair barriers to lending encountered by certain consumer cohorts such as the self-employed.

More and more challenger banks have reimagined current accounts for the self-employed and freelancers with features like receipt and tax tracking. The use of technology is also essential to deal with the challenges of filing taxes and, again, FinTechs are at the forefront of helping self-employed deal with them, for example, with cloud accounting.

“Data-driven technology is changing the lending process, and financial services providers should embrace the use of open banking technology to enable faster and more accurate credit decisions in real-time, which work for everyone – including the self-employed. Greater access to financial data allows lenders to make better decisions about affordability and creditworthiness, based on up-to-date income and spending information, rather than credit scores or antiquated risk decisioning,” Chouhan added.