Finance & The 3rd Sector: Why the Gap?

Is it fair to say that the relationship between finance/banking and the third sector is at an all-time low? And if so, what’s behind it?

A CFG (Charity Finance Group) study (1)* from 2018 detailed a survey that found 79% of the 34 charities surveyed faced some kind of difficulty in accessing or using mainstream banking channels, which is alarming. Digging a little deeper into the survey responses, it doesn’t read any better, with 41% explaining that they had transfers delayed by a correspondent bank, 20% had transfers denied by a correspondent bank, and 15% had delays in opening bank accounts. 

However, this was over 5 years ago. Surely, things have improved with the development of new technologies, driven by a heightened need for banking efficiencies due to the continued emergence of new humanitarian crisis, right?

Not according to Civil Society’s June 2023 article (2) * detailing the Charity Commission’s “growing sense of worry” about banking services, whilst outlining that individual banks need to “step up their levels of customer service” and “better understand the nuances and diversity within the charity sector.” 

And it’s not just charities working internationally who are suffering, with a November article featured on the finance website thisismoney.co.uk (3)* highlighting the plight of small community non-profits who have been subject to account closures in recent months following longstanding banking relationships.  

Across the charity sector, there’s an overwhelming sense that banks simply aren’t interested in supporting charitable organisations. Regarding customer segmentation, charities represent an unattractive business proposition for banks and non-bank Fis alike. They’re deemed high-risk and low-reward, needing significant human resource investment. If any organisation type benefits from the human touch, namely former bank staples such as relationship managers, customer support personnel, and the need for human intervention in KYC and due diligence assessments, it’s nonprofits. 

With the introduction of automation at various levels of finance, such as online chatbots, local branch closures in favour of online banking, and the growing influence of AI (all in the name of “operating efficiencies” i.e. profit), the gap between finance and the 3rd sector is only getting wider. The theme of digitisation in finance would appear to be in direct conflict with true corporate social responsibility and the entire premise of financial inclusivity. Can finance continue to talk around these themes on the one hand whilst heading down the digital route on the other?

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