While already amid a cost-of-living crisis, the UK’s central bank, the Bank of England, has decided to put up interest rates for the 14th consecutive time – another 0.25 per cent raise to 5.25 per cent. How will the country respond, and how can fintechs and lenders support people and businesses alike?
While interest rates have risen consistently since November 2021, news of people and businesses struggling across the UK has dominated headlines. The rising cost of food, electricity, heating and general goods have made it incredibly hard for some parts of the country to manage their finances and keep up with increasingly expensive bills.
In fact, on 2 August, Which? revealed that its missed payment rate reached 8.6 per cent in the month leading up to 13 July, roughly equating to 2.4 million households missing payments on housing, utility bills and credit cards and loans.
With the news that millions are struggling during the warmer months, the consumer champion warned that “the situation could get worse”, especially when people begin to spend more on energy when the temperature falls later this year.
However, the Bank of England responded on 3 August by raising the interest rate, which will see people having to spend more on their mortgage and loan repayments – putting even more pressure on pockets right across the UK. But as consumers and businesses struggle to make ends meet, can fintechs and lenders step in to lend a helping hand?
Fintechs are helping you keep a closer eye on your finances
At a time when people’s money has to go further than ever, fintech tools are certainly serving a purpose in helping consumers manage their money better.
Maysam Rizvi, CEO of financial wellness fintech Elifinty, explains how bad the problem is getting across the UK, as well as how fintechs can play their part in a solution: “According to the Office of National Statistics (ONS), almost one in four UK adults are now borrowing more money or using credit cards to make ends meet.
“A survey by the Together Through This Crisis initiative, reports that 40 per cent of people have no money left at the end of the month, while 24 per cent run out of money for essentials either most months or most days.
“One problem is that most individuals don’t know where to turn to for debt advice when times are tough. On average, consumer debts take two years to clear, due to a lack of knowledge of where to get help. Better support could reduce that time and minimise mental health issues as well.
“Fortunately, fintech is helping to address this issue. We’ve got companies like Elifinty, which is harnessing open data to provide consumers with tailored debt support. Other fintechs apps also focus on helping you save money, such as Snoop, which manages household bills, and Emma, which is good for tracking wasteful subscriptions. At a time of crisis, finding ways to budget and manage debt is important, and fintech is delivering some great ways to do this.”
Consumer Duty leading the way
Suzanne Homewood, managing director at data and payments fintech Moneyhub, also highlighted the power of open data, as well as revealing the force for good that the newly implemented Consumer Duty could become.
“With open finance powered decisioning tools, lenders will be able to better understand their customers’ financial circumstances more efficiently and offer products that are based on their current spending and commitments, and therefore what they can actually afford,” Homewood commented.
“With the FCA’s new Consumer Duty regulations, it’s vital that banks and lenders can prove products are suitable for their customers not just at the start, but across the life cycle of the product.
“Holistic, timely and relevant communication to those that could be falling into financial distress can support better outcomes, which has to be good for everyone”.
The “huge role” banks have to play
While fintechs provide a helping hand, that kind of support can only go so far. As Jayakumar Venkataraman, managing partner, Europe, FS and insurance at consulting firm Infosys Consulting, explains, some of the burden also falls on the country’s banks.
Venkataraman said: “Banks have a huge role to play in assisting customers through the cost-of-living crisis, with a combination of financial education, advisory around their borrowing position and restructuring their debt and most importantly designing products and services that can help their customers.
“This requires banks to better understand their customers, the changing risk profile and ensure they can bring in the right proactive interventions through advanced analytics, leveraging AI and machine learning.
“The opportunity for banks going forward is to play an advisory role to help their clients and leveraging technology will play a major role in delivering this. Open-banking capabilities can be used by banks and personal financial advisors to get a consolidated view of their client’s financial position and provide them with the appropriate advice.”
Time to put the “wealth of data” available to good use
Steve Round, co-founder of core banking engine SaaScada, mirrored these views, as he detailed the importance of lenders and banks stepping up to support customers: “The [lending] sector needs to find new ways to help vulnerable customers.
“Many lenders already have a significant amount of customer data that can be harnessed to better understand the customer – reducing risk of delinquency for lenders while improving the chances of getting a loan for customers. Data such as customer income over time, current and historical credit utilisation, assets, or spending habits can be leveraged to personalise rates and terms for new borrowing or inform forbearance for existing loans.
“It’s more important than ever that banks support their customers with tailored products and services to help them through these challenging times. Not only will it help the bank avoid bad debt, but it will also increase customer loyalty in the long term.
“Most financial institutions hold a wealth of data about their customers, now is the time to put that data to good use to better understand their customers and provide appropriate solutions.”
“Government and fintechs working together will be crucial”
Rich Bayer, UK country manager at BNPL payment service Clearpay, concluded the discussion by covering the issues in the lending sector, the role of fintechs and how the government can help consumers.
Bayer explained: “For too long, the UK credit market has been dominated by a systemic reliance on revolving debt. As interest rates continue to rise, consumers and businesses are feeling the impact. It is encouraging to see that retailers are increasingly offering innovative payment tools at checkout to help consumers manage their spending effectively.
“Payment fintechs play a vital role in providing consumers with more choice and flexibility over how they handle their finances. During this challenging financial period, ensuring consumers can confidently access transparent and easy-to-use forms of interest-free payment solutions is more important than ever.
“HM Treasury has committed to introducing regulation which both fosters innovation and protects consumers. This means mitigating risk for vulnerable customers and ensuring gold standards of customer service and responsible spending measures like payment reminders and pausing accounts if a single payment is missed are upheld industry-wide. Government and fintechs working together will be crucial to truly support UK consumers.”
