by Michal Kissos Hertzog, CEO, Pepper
Despite the abundance of technology and information at our fingertips, impartial and free financial guidance is scarce. Fintechs are addressing the financial literacy gap with tailored insights, real-time alerts, and nudges – but our new research has found that consumer confidence when it comes to managing their personal finances is shockingly low.
The recently launched Pepper report, Banks’ Role in Modern Society, found that 93% of consumers do not believe their school, college or university prepared them to control their purse strings, with two thirds (67%) admitting they feel ill-equipped to make the best financial decisions for themselves.
As we enter a new decade banks need to understand their role in modern society is changing. But what can they do?
Banks are still not leveraging data to solve pain points
When it comes to financial education, there’s clearly room for schools and universities to step up. But it makes sense for banks to play a role in this too, as they have the data and tools to help people manage their money in real life. What’s more, in the absence of robust financial awareness among customers, nearly half (47%) said they believe it’s a bank’s duty to help them make better money decisions.
goHenry, Squirrel, Cleo, and Yolt are good examples of fintechs who are working to fill the financial literacy gap in the UK, offering solutions to help Brits better manage their cash. So why are banks still yet to make headway in this space?
One key reason for this is the inability to utilise the wealth of customer data they’re sitting on, due to clunky legacy systems that still exist in most major banks. Products and services need to start with understanding customer pain points – such as people not being involved with their money; not knowing how much to save, how much they’re paying for loans and so on – and using that data to focus on solving them.
If banks moved from a business model that focuses on P&L and to one which puts customers at the heart of decisions, they would be well underway to fixing the financial literacy gap and catering to the 49% of Brits who would trust their bank to provide money management information.
Fintechs are able to address these pain points much easier, adapting to new demands quickly and efficiently. With a flexible digital core, traditional banks can meet customers’ evolving needs and demands and provide solutions of real value that empower customers with financial awareness and knowledge.
Boosting consumer’s knowledge and confidence to invest
It’s not news that cash savings rates in the UK are shocking. According to Finder, consumers are struggling with growing their cash: 1 in 3 Brits having less than £1500 savings, yet our research shows they’re still not turning to investments because they lack the know-how. In fact, nearly three quarters (72%) of consumers do not currently invest in stocks and shares or in an investment fund, with a fifth (18%) admitting they do not know how to.
Fintechs such as Wealthfront and Acorns in the US, are working towards giving everyday consumers access to investment education. At Pepper, we recognised the gap in the market and launched Pepper Invest, which provides customers with educational insights such as information about the stocks available and their past performances, analysts’ recommendations, news, hot updates, a glossary of capital market terms, and more.
Yet many banks in the UK often ignore customers than earn below a certain wage. In fact, almost two thirds (63%) believe banks prioritise those in better financial positions and over a third (36%) say banks don’t prioritise loyal customers at all – that’s a lot of customers that feel underappreciated.
The rise of apps, APIs and broader technologies within AI, data science and machine learning, is beginning to open up access and help those who want to get onto the investment ladder (e.g. 73% of 18-24-year-olds) but feel like they can’t (e.g. 81% of 18-24-year-olds). Not only does this help lower the barriers of entry to the investment market, but these technologies can also help to provide education and guidance along the way. Clearly though, the industry has a way to go and banks in particular need to step up.
Consumers want more from their bank – not just a safehouse for cash
Nowadays, consumers want and expect more from companies they interact with. In the same way that Asos suggests similar items based on your browsing history, or Deliveroo recommends your next meal by using your last order, the research has shown that consumers want their bank to be more than just a safe house for cash.
Ultimately, this is a reciprocal relationship. If banks help their customers become more financially savvy, by giving them the tools to make better financial decisions with simple and straightforward guidance, they will become better customers. They will be more likely to use other products and services in a positive way – such as mortgages and investments – yet too many banks are still reliant on income from overdraft fees and costly loans.
Above everything, a bank’s role in modern society is to be customer-obsessed and to do right by them. It’s crucial that banks move away from a profit and loss business model and mindset to one which focuses solely on the customer. Only then will we see the improvements to financial education and literacy that consumers clearly want and need.