Fintechs can't solve the root causes of today's economic malaise but can help people make it through in one piece, writes Julia McColl, chief product officer at Chetwood Financial.
The driving forces behind fintech in recent years – Banking-as-a-Service (BaaS), advances in open banking and a renewed emphasis on innovation – have all led to a staggering sea change when it comes to the financial products that people use every day. Embedded insurance, novel credit products and personalised accounts can do a lot to improve the consumer’s experience of managing money and handling transactions, but as we head into an ever-more troubled financial future, what will these products and services do to improve financial wellbeing?
Recently the Bank of England raised interest rates by 25 basis points to combat inflation, which had reached its highest level in 40 years and is showing no signs of stopping. Consumers are beginning to feel the pinch, with the cost of groceries, petrol and utilities all increasing month on month.
The duty of fintechs in recent years has been to revolutionise the financial services sector and to challenge the longstanding financial institutions and legacy banks that for years have had a seat at the head of the table. As more and more people face financial hardships in their daily lives, the duty of fintechs needs to change – these companies must begin adjusting their offerings and their focus to improve the financial health of their valued customers.
But what can fintechs do to support consumers in the rising cost-of-living crisis? How can novel financial products and solutions make a difference to people trying to make ends meet? And what impact will this have on the future of the finance sector?
Fintech for good
The solutions that are enabled by fintechs can do much more than help consumers spend their money – they can be used to consolidate funds, bridge gaps and improve their credit score. Careful financial management is key during a pinch, and smart, open banking-enabled solutions can provide useful insights and guidance to those who need it.
Fintechs offering budget management applications provide a platform for people to monitor and consolidate their spending. I’d like to see more fintechs adapting their offerings with this personalised approach in mind – a clear picture of one’s outgoings and spending habits is the first step to improving financial wellbeing and can help prevent spiralling debt.
This does not mean that credit products are an inherently bad thing for those trying to make ends meet. The key issue with credit is misuse – either using the wrong products or using products in the wrong way. Fintechs can offer debt consolidation platforms, allowing people to better manage what they owe, while credit comparison platforms can help consumers find products that help them pay down debt or repair/improve their credit rating. This, in turn, creates cumulative benefits, eventually providing access to better credit products.
In short, fintechs need to do more to improve the financial health of their users – part of this is providing products and platforms that make this possible, but the other side of the coin involves engagement and education.
This is perhaps the greatest impact that fintechs can have – while educational resources for financial management and correct credit use already exist, most consumers would have to actively seek these out and may not be aware of their value. Fintechs can use their platforms to promote learning, awareness and financial savvy amongst a much greater pool of people.
Offering engaging and interactive learning resources – potentially even incentivised with in-app rewards – that help users improve their money management and boost their credit ratings would be a huge boon for consumers everywhere as economic upheaval persists.
Healthier and happier
Fintechs have a responsibility to their users – without their customers, these companies cannot grow and succeed, but that street goes both ways. New and existing fintechs should place more emphasis on using financial products and services to become more financially secure and better equipped for the future, whatever it brings.
This can be achieved through the solutions and platforms they provide, but more importantly, those platforms can be used as a means of engagement, providing useful information and advice about how to best use the solutions with financial wellbeing and resilience in mind.
It is unlikely that fintechs will be able to do much to combat the root causes of the cost-of-living crisis, but if they take the right approach, they will be able to help people to make it through in one piece.
The views and opinions expressed are not necessarily those of AltFi.