At a time when economic uncertainties are rife and a cost-of-living crisis has its grip firmly on the nation, protecting and growing consumer trust is critical to ensuring those impacted do not stray from the financial mainstream.
Scott Dawson is head of sales and strategic partnerships at DECTA, a provider of end-to-end payment infrastructure, from acquiring to issuing and processing, with seven core products that have seen more than 2,000 merchants harness its technology resulting in more than £1billion in transactions globally.
Here, Dawson delves into the importance of building and maintaining consumer trust in the face of economic uncertainties and a cost-of-living crisis in the UK, highlighting how paytech companies can play a crucial role in fostering trust and bridge the gap between the unbanked or underbanked and mainstream financial services.
Those that are on the cusp of financial exclusion, currently estimated at around four per cent of the British population, typically experience an annual levy of £485 per person as a result of economic hardship. Seeing data breaches and cyberattacks in headlines doesn’t help, damaging reputations of those organisations affected.
Consumers need to trust the brands they engage with to ensure security of their payments, so businesses must retain that engagement and protect their bottom line.
That being said, trust is a two-way street. Customers need to be able to trust that their financial institutions (FIs) are an effective and superior alternative to informal banking – but at the same time, FIs need to trust their customers, even if their lives and finances are complicated. At the intersection is technology, which is where customers and FIs interact and where trust begins.
The reality of the current crisis
The cost-of-living crisis is casting a long shadow over many UK households and businesses. Spiralling inflation, soaring energy prices, and stagnant wages have all combined to create a challenging economic environment. This has meant that ordinary families are contending with rising household bills, higher costs for groceries, and increasing living expenses, while businesses are feeling the pinch due to the escalation of operating costs. This crisis, compounded by the global economic instability following the pandemic and war on Ukraine, to name but a few factors, has left many financially vulnerable.
Inflation rates, both a typical and critical barometer of the cost-of-living crisis, have grown rapidly to levels not seen in years. Essential goods, from food to fuel, are becoming ever more expensive. And this has a disproportionate impact on both low-income individuals and small and medium-sized enterprises (SMEs), that are forced to allocate a larger share of their income to meet basic needs, leaving little for savings or investment back into their companies.
Taking the point of SMEs, even further, those in the payments industry are potentially at even greater hardship to their peers. As while companies in the energy, groceries and fuel spaces are reporting record profits, other businesses stand to lose out as consumers’ money is stretched thin. Generally speaking, payments companies do well when there are a lot of transactions taking place, and arguably, there could be far lower levels during an economic downturn.
What follows an economic crisis?
If the UK does indeed fall into a recession over the coming months, the financial challenges faced by the population will likely intensify. Thus, the question of trust becomes vital: consumers won’t want the added risks of using unproven services. Payments should not only work and cost as little as possible, but be secure, forming part of a trusted ecosystem.
Companies – particularly new and startups – will have to do more than ever before to show that they can be trusted. They will need to be able to not just tell but show potential customers that they are a safer alternative to both established banks and the informal economy (using cash or turning to alternative payment methods, like cryptocurrency). Even though businesses might be shorter on funds, perhaps their most pressing question could be whether customers trust them.
Creating trust with paytech
In these challenging times, paytech (or payment technology) has a pivotal role to play in helping consumers and businesses via innovative solutions that improve everyday lives. Companies in the space are uniquely positioned to bridge the gap between the unbanked or underbanked and mainstream financial services by first and foremost fostering trust.
Importantly, businesses must demonstrate that they are supporting customers. That can be by providing a cost-effective service, genuine value in the solution, or using terms that don’t unnecessarily exclude people, as well as transparency and security. All these elements are vital to not just retaining current customers but bringing in those who might otherwise be excluded. I have always advocated a back to basics approach for businesses, and companies proving themselves through what they do rather than what they say.
Those that can create bespoke payment systems instead of integrating generic solutions will be best placed to help develop ways for companies to offer solutions that fall outside of the financial mainstream. Such payments companies can also enable companies to simplify the complexity that can lead to financial exclusion: many people on the financial margins need to send money abroad or interact with their banks that may be in other countries.
Multi-currency payments support means that they won’t face extra charges every time they use their current card for payments. Coupled with the ability to deploy digital banking platforms also means that people who can’t get into branches but can access the internet are able to have full access to finance.
An urgent need for action
Overall, the cost-of-living crisis and the possibility of recession have underscored the urgent need to address trust in the UK’s financial systems. Paytech companies have a pivotal role to play in this venture, offering innovative solutions that encourage trust and build upon the momentum to get more people engaging with their finances digitally, while priming businesses with the best platform for sustained success.
By actively engaging in efforts to promote trust during these trying times, not only can they bolster economic resilience, but also ensure that progress made in this crucial area is sustained and enhanced for the benefit of all.