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Cost of living crisis: A fintech opportunity to help consumers

As the list of consumers' worries grows weekly, entrepreneurs in the digital finance space face a fresh opportunity to prove fintech’s value.

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The first chapter of the fintech boom was marked by a largely optimistic time for the economy. This translated into fintech apps and services that empowered consumers with ways to grow and manage their money through commission-free stock trading, robo advice, neobanks and BNPL. 

Now, with the economy in the UK - and around world -in disarray, a fresh fintech opportunity is emerging.

Helping consumers survive an ever-growing list of economic challenges from a plunging pound, rising energy costs and mortgage market turmoil solves a mounting problem.

Tough times can lead to profound innovation. Here are three keys areas for fintech founders to focus on: Consumer lending, mortgages and pensions.

Lending to consumers is increasingly hard and fraught with new risks.

Marqeta recently surveyed 4,000 consumers, a quarter of whom is UK-based. Nearly half (48 per cent) of the UK group said they are struggling to make minimum monthly payments on their credit cards owing to the mounting cost of living.

As these pressures mount, Marqeta found that consumers are becoming more budgeting-aware and are also looking for more from their credit card provider. 

Many of those surveyed said they are seeking more personalised offerings and non-traditional credit card rewards, such as extra points or cashback for categories where they spend the most money (68 per cent); offers from merchants they have shopped with in the past (43 per cent); lottery rewards (36 per cent); portion of stock (28 per cent); or cryptocurrency (24 per cent). 

Gen Z consumers surveyed were particularly interested in innovative credit options to help navigate the cost-of-living crisis, with 63 per cent of 18-25-year-olds surveyed wanting more insight into their spending to help manage budgets more effectively.

The mortgage market is another area of fintech crying out for more innovation.

There are a number of digital first providers but much of the market remains woefully slow and clunky while even getting to the stage of being able to afford a mortgage is becoming harder.

If you are a first-time buyer today without the support of the Bank of Mum and Dad saving for a house deposit is a near impossible task. Sky high inflation has hit purchasing and therefore saving power in real terms making the process of saving up for a big enough deposit increasingly fraught. 

As AltFireported this morning, fintech mortgage lenders Habito and Atom Bank have “temporarily” pulled their mortgages from the market this week joining a host of other incumbents reticent at how to price mortgages given the recent uncertainty in interest rate rises.

Open banking provider Tink, which was acquired by Visa last year, says with the mortgage industry in turmoil better decisions on lending are needed which can be provided through bank account data.

However, it says half of UK lenders (50 per cent) are not currency using technology to generate a credit score based on bank account data.

“It’s clear many lenders still rely on traditional credit checks to determine eligibility for loans. There is no place for such models in our current economic climate, and the sooner this is recognised, the better the outcome will be for both lenders and consumers” Tasha Chouhan, UK & IE Banking and Lending Director at Tink said.

“New forward-looking models are drawing on open banking technology to provide a holistic picture of people's finances. It’s vital to protect potentially at risk or vulnerable consumers from problem debt or default as the economic climate worsens. At the same time, it’s key to promoting financial inclusion, as people now more than ever need access to safe, affordable, and regulated borrowing options,” she added.

Tink says the industry should unlock “fairer, more inclusive affordability checks that support and protect consumers and businesses amidst the cost-of-living crisis”, whilst also reducing the risks to lenders from a potential new wave of defaults.  

Another key area that fintech can help is in the pensions market. 

While a number of companies such as PensionBee,Moneybox and Cushon have been active in the pensions market for several, millions of pension savers are still not saving enough. 

A new report from the Work and Pensions Committee on the adequacy of pension provision found that part-time and gig economy workers, women who take time out of work to care, the low-paid, and people over 40 who did not have a defined benefit scheme but have not had enough time to build up decent pots through auto-enrolment, are the groups most at risk of inadequate retirement incomes.

Becky O’Connor, Head of Pensions and Savings, interactive investor, says “retirement adequacy” is the new buzz phrase when it comes to pensions. 

“It has become clear that thanks to auto-enrolment the issue the UK now faces is not so much not enough people having a pension, but about whether the pension or pensions most of us now build up through work will actually give us a decent living standard in retirement,” she said.

A big problem, she says,  is that many people “are just unaware they are not saving enough”.

As this issue moves up the political agenda, transformative change in the pension market will be needed.

Of course, the cost of living crisis cannot be solved by technology alone. But innovation from fintech can certainly help improve consumers' financial lives more than ever.

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