Why the cost-of-living crisis means fintechs need to level up in 2023
This year we will see a 'findustrial' revolution, writes Louise Hill, co-founder & COO of GoHenry, as more companies in fintech and banking invest in innovative ways to help cash-strapped individuals and companies.
The cost-of-living crisis has transformed the way the UK manages its money. At each end of the financial spectrum - from decision-makers at the very top of government deciding where to put their budgets, right down to kids’ pocket money - never before in my lifetime has there been such a universal focus on family finances.
The impact of the Covid-19 pandemic, nationwide lockdowns and recent political upheaval has compounded to create a perfect financial storm that, due to the 40-year high in inflation, many are still struggling to weather.
And it’s not just savings that are taking a hit, some are at risk of falling into debt by using services such as buy-now-pay-later, just to get by. It is perhaps then no surprise that conversations at home are now starting to focus on money worries.
As we launch into 2023 alongside predictions of a recession, financial services companies will have no choice but to adapt. Fintechs in particular will have an ever greater role to play in helping people to earn, save, spend and give money responsibly. It is my view that this will result in a period of growth, both in technology and innovation, to meet the needs of penny-pinched families being hit the hardest.
This year we will see a 'findustrial' revolution, and these are my predictions for the key trends that will emerge in our industry over the next 12 months.
Using fintech to improve financial literacy
Most of us use some kind of banking app to keep track of our finances, meaning fintechs are uniquely positioned to provide greater support to those worried about the cost-of-living.
Some banks and fintechs have started to offer sporadic advice on their applications and websites, which is a start, but more needs to be done to build the UK’s financial resilience. I believe prioritising financial education is the best way to achieve this and I expect to see more financial services companies launch products and services in 2023 that will help to improve the financial literacy of customers.
Providing easy-to-digest tips and advice is a great way to help people on their financial literacy journey, but companies need to make sure they are going deeper than surface level. Clearer labelling - whether that’s on investment products or credit services like buy-now-pay-later - is critical to better inform consumers of how to use more complex financial services responsibly, which will ultimately help to democratise access.
Fintechs should also give customers an opportunity to put theory into practice. Would you drop your child in the deep end of a pool for the first time and expect them to swim without giving them a chance to practise first? The answer is absolutely not. Why? Because you can’t just teach the theory of swimming, you need to get into the water and take the time to practise in a real-life environment. The same theory applies to financial literacy.
Encouraging customers to build and hone financial skills from a young age - money habits are formed by the age of 7 according to a University of Cambridge study - by introducing topics linked to real-life scenarios is a great way to help young people understand the importance of money in everyday life.
Topics like saving, budgeting and credit don’t mean much unless you connect them to saving in a virtual piggy bank or learning about the pros and cons of buy-now-pay-later schemes.
The more fintechs do this with customers, whether they are children or not, will help them build resilience, not just during the current cost-of-living crisis, but for the future.
The rise in fintech for good
Fintech for good will become a key trend in 2023 as companies look for more ways to democratise products, services and support social causes.
Consumers, especially younger generations like Gen Z and Gen A, will continue to prioritise companies that champion causes like sustainability, diversity and inclusion, so while this move is certainly good for society more broadly, it’s also good for business.
The cost-of-living crisis has forced consumers to reflect on their spending and many are now choosing to donate money to those less fortunate.
Through partnerships and in-app functions, fintechs should consider how they can give customers the chance to ‘do their bit’.
The rise of the super app
Over the past few years, fintech has provided highly specialised and niche products and services targeted at audiences with specific financial needs. For example, Pension Bee’s focus on retirement planning and pensions and Nutmeg’s focus on investments. These fintechs have created seamless services for their customers to help them navigate complex topics.
This year will be defined by collaboration, consolidation and the emergence of ‘super apps’. These super apps will bring together a multitude of services like savings, payments, and investing into one.
However, the super app is not a move for fintechs alone. Customers want easier, more integrated and sophisticated applications that help provide ease to the everyday - a ‘single customer view’. This is especially important for younger generations, who have grown up with an application for everything at their fingertips.
As the cost-of-living crisis continues, the findustrial revolution will see more companies invest in innovation that will support customers in their time of need. Along with helping people through the current financial crises, this year, fintechs will look beyond products to champion social causes like sustainability and education.
With 2023 set to be one of the toughest financial years yet, fintechs should seize the opportunity to make a positive impact on UK families, truly innovate to meet some of these big challenges and help the UK become a key driver in fintech’s global success story.
The views and opinions expressed are not necessarily those of AltFi.