cost of living
Fintech Fintech for Good Weekend Read

Fintechs Spring Into Action to Combat Cost of Living Crisis

It is about “what side of the line do you want to be on,” says the founder of a startup which has created a free household expenses dashboard to help with the cost of living crisis.

Greg Marsh, founder, Nous
Greg Marsh, founder, Nous

Greg Marsh, the founder of fintech Nous, says amid the current cost of living crisis fintechs have an ‘ethical duty’ not to exploit households, saying those that do might suffer the same fate as the collapsed payday-lending sector.

His comments come amid a crisis that shows no signs of abating, wreaking financial havoc on households and businesses alike, with the threat of the mass closure of SMEs just one example of its likely devastating impact.

But the crisis also presents a whopping opportunity for fintech to showcase their values as nimble-thinking disruptors able to swiftly bring sought-after services to imperiled businesses and households to market.

Fintech born to fix a crisis

In fact, fintechs were born to fix crisis, say experts. They point to the fintech industry being born out of the 2008 financial crisis and rescuing troubled businesses during Covid, so the current crisis marks just the latest challenge for fintech to wrestle with and showcase its skills.

But, they add, it also raises a deeper question as to whether those fintechs that act selflessly during the crisis, for example, by providing discounted or free services, will reap the benefits post-crisis. Marsh adds: “I don’t just think the challenge for fintechs is to make free tools and services available where they are helpful to people, I also think they have an ethical duty not to exploit households in distress.

“In the long run, we have seen what happens to companies where they haven’t met a bar. Look at what happened to the payday lending sector.”

Fintech response to the cost of living crisis

Fintechs have been fast out of blocks providing a smorgasbord of services and financial aids to help consumers and business customers during the current plight.

Financial education tools, spending and budgeting trackers, fee scrapping, one-off payments to staff are amongst products and services hurried out by fintechs.

Budget and money management products

Like others, Starling Bank launched an ‘updated’ money management feature with a raft of new categories like essential spending, rent and takeaways, in response to the cost of living crisis.

The new categories have proved “very popular” says Starling, which has also launched a new budget planner to help its customers better cope with the current difficult economic climate.

Likewise, London-based Nous has used open banking and other data to create a dashboard to create a tailored plan highlighting how customers’ bills might change during the crisis.

Marsh says many tens of thousands have signed up for the free-of-charge plan, with the sign-up demographic skewed to those on lower incomes and (because of its use of open baking) a younger generation.

Marsh thinks the free service will stand it in good stead, ahead of the launch of its paid service which it’s soon to launch, as it looks to offer households a savings-as-a-subscription service product.

He adds: “I think businesses have to do their part. It wasn’t a tremendous amount of work to offer the dashboard and I think it has helped us understand the situation that households are in.

“And I think it’s helped us sort of establish our credentials in the broader cost of living conversation that is taking place.”

Diverting pension contributions

Another fintech which has seen an uptick in some of its services during the crisis is pensions and savings provider Cushon.

Steve Watson, director of policy and research, Cushon, pointed to two of its services “which have been getting a lot of traction”.

Both Pension Redirect (offers individuals the chance to shift workplace pension contributions into accessible savings) and Salary Exchange (a tax-efficient way for individuals to take a salary cut while maintaining pension contributions at a lower cost to the individual) were launched pre-crisis, but Watson says interest has spiked during the crisis, as the fintech can communicate their benefits in a simplistic, jargon-free way.

Account fees axed

The cost of living crisis is not just confined to the UK, with Europe also suffering. To combat some of the pain, Germany’s N26 erased all custodial fees – previously charged on accounts with balances of over €50,000- from July this year, among other measures.

N26 said the move was in contrast to many of its rivals continuing to hit customers with fees. Alexander Weber, chief growth officer, N26, said: “N26 firmly believes that in times of economic uncertainty, consumers need their bank to help them make the most of their money. We want to take away the effort and stress that managing your finances requires.”

Financial education

Financial education has been a priority for Moneyfarm, the digital wealth manager, says Chris Rudden, head of investment consultants, Moneyfarm. Rudden said: “As we have seen turbulent markets over the past year or so, and in particular since the beginning of this year, we have put even more emphasis on providing information.

“This has been a multi-channel approach, some of which has been written materials via our newsletter and blog, we  have tried to explain what is happening, the impact on savings and investments and what the options are.”

Others to have launched similar types of financial support tools, include CreditSpring, the subscription-based lender, which has launched a free tool for its members giving them financial information as well as details of access to affordable credit.

Financially educating the young

GoHenry, the financial app and debit card for children, says the current economic turmoil is an opportunity to reassess educating children about finances.

Louise Hill, co-founder and COO, GoHenry
Louise Hill, co-founder and COO, GoHenry

Louise Hill, co-founder and COO told Sifted: “While it can be a daunting subject to approach, the cost of living crisis provides a perfect opportunity to start conversations around financial education with kids.

“Parents might think that teaching their kids about finances is a tricky task, but there are simple and practical ways to start, which is where fintechs really come into their own.

“Fintechs can help bridge the financial literacy gap by turning financial education into a motivating, fun and rewarding way for kids to build confidence with money.”

Act selflessly and reap benefits

The current economic turmoil also raises questions about how fintechs, for instance those offering credit services, should act during this period of uncertainty.

For example, some say uncertainly about the buy now, pay later regulatory landscape threatens to ensnare many consumers who use buy now, pay later in debt and there are concerns that many are unaware of the risks to their creditworthiness and purse strings.

“There are certainly some fintechs which principally have sell or have sold credit products,” says Marsh. “One needs to be really careful about the ethics of how to do that in fair way during a time when some households are facing acute and extreme anxiety and distress.”

For Watson, the plight, though, has just shone a spotlight on the inadequacies of incumbent financial service providers. Watson said “financial services have always been about accessibility.”

He added that the cost of living crisis has just highlighted “what is really wrong” with incumbent financial services which are too complex for many to understand.

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