Cost-of-living crisis could spur fintech adoption

The cost-of-living crisis could spur innovation in the fintech sector as consumers look for help with managing their finances.

The current financial struggles of people across the world could encourage the adoption of apps, just as the Covid-19 pandemic did, but for different reasons.

When Covid-19 hit the world in 2020, the need for people to avoid contact with others drove the adoption of digital banking. With high streets shut down for long periods, the take-up of financial technology exploded as people across all age groups turned to apps to manage their money.

Apps could also help people manage their finances during the current cost-of-living crisis, with financial management tools, personalised financial products and a range of credit options available.

The combination of older people taking up app-based financial services and younger, digital-savvy people struggling to make ends meet could drive further innovation in the fintech sector.

Recent research from cloud-based card processing platform Marqeta, which looked at how much consumers were struggling due to high inflation and a slowing economy, found that people were looking for more credit options and trying to better manage their finances.

In its survey of over 4,000 people, including 1,000 in the UK, Marqeta found that a lot of consumers were turning to credit to cope with the rising cost of living, with 57% of those surveyed having used credit cards to make ends meet over the past year. This figure was higher among Generation Z consumers – those born towards the end of the 1990s and labelled as digital natives – with 68% of 18-25-year-olds using credit cards to get by.

According to the survey, consumers reliant on credit also have service expectations, with 42% seeing refund protection on purchases as a major benefit, 39% liking the fraud protection it offers, and 37% viewing the ability to purchase without needing funds immediately as a major benefit.

It found that consumers also want more from their credit card provider to help them budget, with many seeking more personalised offerings and non-traditional credit card rewards. These include extra points or cashback for categories where they spend the most money (68%), offers from merchants they have shopped with in the past (43%), lottery rewards (36%), portion of stock (28%), or cryptocurrency (24%).

Generation Z consumers were most interested in innovative credit options to help navigate the cost-of-living crisis, with 63% wanting more insight into their spending to help manage budgets more effectively.

“It’s clear that consumers are looking for viable credit options to help them through, but they are being more demanding and want flexible credit options and to be able to manage repayments,” said Anna Porra, European strategy director at Marqeta.

“Providers need to also offer capabilities that help consumers educate themselves and better budget,” she added. “They are looking for the clever offerings that give them relevant offers and cashback, not just reward points they will never use, which will help relieve pressure. These providers need to understand their customers to do this.”

She said fintechs would quickly adapt to meet customer demands: “Fintech is about innovation, and being successful is about understanding customers and how they can better meet their needs.”

Gareth Lodge, an analyst at Celent, said while more flexible credit would help, there were questions over how responsible that lending might be, with some quarters believing it could make things worse. “Many ‘buy now, pay later’ type loans don’t show on credit checks – and I believe some don’t do credit checks either. For a loan of £10, that probably makes sense, but where do you draw the line?”

He said there was also a more structural question. “Banks are well funded and must hold reserves. Many banks are putting away funds in anticipation of growing losses from loans, be it holidays or defaults. But are fintechs as well prepared?”

Lodge predicted the current crisis would test the mettle of all financial services suppliers. “I don’t know enough to know whether there will be any collapse in the market in the UK, nor am I anti-credit. But logic suggests that there is an oversupply currently, and that if the economic conditions continue to deteriorate, any business, be it bank or fintech, is going to face a real test of their lending policies, and it will highlight those who are prepared and those who aren’t,” he said.