Feature Digital Banking

Can digital banking help consumers fight the cost-of-living crisis?

Challenger banks may boast newer sets of features than their traditional rivals, but can this actually help consumers experiencing a more difficult set of circumstances than what we’ve seen in living memory?

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Starling Bank and Lensi Photography.

This is an excerpt from AltFi’s Digital Banking State of the Market Report 2022, which is available for free here.

With the steepest rise in the cost of living since the 1930s on the horizon, consumers and the banks that serve them are stuck with a whole new set of challenges to work through, with no real precedent. 

More people are using challenger banks than ever, particularly millennials, who are set to be some of the worst impacted by the crisis. Research from Deloitte has found that 38 per cent of millennials and 31 per cent of Gen Z consumers felt more anxious about the impact of rising prices than any other issue, including climate change.

But are challenger banks better placed than traditional banks to help consumers? And can they leverage newer platforms and rich stores of data to help consumers in ways that are actually effective?

When Should Neobanks Intervene?

Sometimes simply knowing when to help is a challenge in and of itself. It’s not uncommon for people in the UK to be guarded about their finances even with their closest family. If it’s sometimes next to impossible to know if someone is close to arrears until it's too late,  should banks be using any and all information they have on their consumers to jump in when they know they are in danger? 

Helen Wilson, chief operating officer at Atom Bank, believes proactively contacting customers can be a great way to help smooth their way through the cost-of-living crisis.

Atom Bank is using third-party data, obtained via sources like credit reference agencies, to identify customers who are feeling stress, looking at indicators such as having a county court judgment or unsecured debt before making contact.

Wilson believes the strategy has been effective thus far, claiming positive feedback, and that its arrears book is small.

Atom is eventually looking to do more to develop its own data capacity further in the future, going beyond just third-party data to start using more of the data that it has internally, according to Wilson.

Jonathan Gregory, chief of staff at card consolidator Curve, thinks financial institutions of all kinds have a legal duty to be proactive and have an obligation to be “fair to their customers”, something enshrined by the Financial Conduct Authorities’ upcoming Consumer Duty.

What Strategies Are Banks Taking?

Rather than just feeding consumers with advice, Garrett Cassidy, vice president of financial products at Monese, said consumers will naturally gravitate toward better money management as times get harder, and digital banks should support them as they do…

Want to keep going? Read the full feature in AltFi’s Digital Banking State of the Market Report 2022, out now!

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