Cross-Border Fintech, Expats, Financial

Who are the Financially excluded in Europe? It’s not just who you think

When we talk about financial inclusion, you might be picturing the world’s poorest nations locked in inflated cash economies, or refugees fleeing from the struggles of their home country. Our current understanding has made us recognise that the issue is far broader than that.

London Skyline at night — Image by skeeze from Pixabay

According to the World Bank, a person is financially excluded if they can’t have “access to useful and affordable financial products and services that meet their needs, transactions, payments, savings, credit and insurance”. The World Savings Banks Institute states “ In countries with the highest “no-account” rates, almost 40% of the population face financial exclusion”.So why do people struggle to access financial services?

A person is financially excluded if they can’t have direct access to useful and affordable financial services

Let’s talk about expats

The European Union (EU) is the home of “the free movement of workers” as its fundamental right. Therefore, EU citizens are entitled to work, live and enjoy equal treatment with nationals anywhere in EU. Having said that, in practice every EU expatriate struggles for the first 3 years of their life to have a basic access to the financial services of their new local market. In terms of numbers, expats account for almost 7% of the population of EU.

Since Germany is ranking as the country with the most EU expat population, we will assume a use case where an Italian expat is moving to work in Berlin. In order to start their new life in a new country, the following four tasks will be needed to be sorted out:

  • Finding a new accomodation to live
  • Getting a bank account
  • Searching for a mobile and broadband contract
  • And finally setting up any remaining utility bills
  • (We would also consider employment, but since more than 75% of expats are moving with an employment offer already set, we safely exclude it)

In addition, depending on the circumstances of the individual, considering a credit product for the expenses of the early days, as well as an insurance package are worth having in mind.

To complete and register for the above vital services, the following information is commonly requested to be provided: Passport; proof of address; proof of employment; schufa-auskunft (Germany’s credit score); mobile phone number and email.

To apply for services it is common to be asked for your following information: ID, proof of address, proof of employment, Credit score, mobile and email.

The reason that this information is required is to assert the customers’ profile for its creditworthiness. This is happening by classifying the individuals’ historic data and modeling it to a risk profile, then this categorisation is used by the financial service providers to upsell their products.

This model has been working well enough for decades but has always been leaving the 40% of the local population as outliers and underserved, whereby a major percentage of this population has been the local expatriates.

The inability of the traditional financial and utility providers to consider the individuals’ past, because of a lack of integration for quality data, has contributed to the alienation of the newcomers from the mainstream financial ecosystem, by providing as the only option high-cost and unaffordable basic services. As a result expatriates have to overpay utility, credit and broadband services that they vitally need, simply because the primary providers are missing data and can’t illustrate the accurate status of their users.

Expats overpay for basic services because the mainstream providers are missing the historic data from their emigrated country and can’t illustrate their accurate financial status.

Why do expats feel underserved in Europe?

Berlin wall — Image by Thomas Ulrich from Pixabay

The main driver for the population move in Europe is to join a new opportunity. Currently, there are 13M people underserved without an easy access to basic services such as mobile, finance, banking and insurance contacts that can allow them to continue their life style. This is an opportunity gap that businesses have missing to serve.

Expats, due to the high stress and cost to start a new life in a new country have a purchase appetite of an average €30K-€50K for finance, utility (eg mobile) and insurance contracts, to receive within their first 3 years, but never had the option to receive, and this is what Ocyan solves.

If you liked this post, you should read the relocation story “ An Expat’s Journey to Europe”, by Gabriele Cacciola ( Ocyan’s CTO) on how he managed to “hack” the UK’s mainstream financial system to start his new life in a new country.

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