Organisations often find themselves battling with others to ensure customer loyalty – but a new challenge is starting to emerge, making the loyalty battle almost redundant. This rising issue is a lack of consumer confidence. Without confidence, consumers won’t spend, and this will set off alarm bells for organisations.
David Brown is the founder and CEO of social enterprise platform, Hi. The company enables businesses to finance their payroll, whilst giving employees the freedom to choose how and when they are paid.
As the UK faces new low levels of consumer confidence due to the cost-of-living crisis, Brown explained to The Fintech Times how flexible pay can boost consumer confidence at this critical time:
How flexible pay can boost consumer confidence
With rising inflation, increased energy prices and the cost of food expected to rise by up to 15 per cent this year, consumer confidence is now lower in the UK than it was during the Brexit referendum and the 2008 financial crisis.
Businesses can help mitigate the decline in consumer confidence by improving the financial well-being of their employees. By offering flexible pay, companies can reduce the squeeze on spending that many go through at the end of the month. Additionally, they can enable employees to buy the things they love without sacrificing their financial security.
Declining consumer confidence
The OECD measures consumer confidence using its Consumer Confidence Index (CCI). A CCI value of above 100 signals a high level of consumer confidence, while values below 100 indicate a more negative attitude towards future economic developments.
This year, the global CCI value has dropped to just below 96.5. In particular, the UK’s CCI value has plummeted to below 93, highlighting the UK’s drastic reduction in consumer confidence.
The GfK Consumer Confidence Baromoter’s measure was even more striking. The consumer research project, which provides a snapshot of how UK consumers feel about personal finances and wider economic prospects, dropped five percentage points to minus 49 in September, the lowest since records began in 1974.
The drop in consumer confidence typically results in a tendency to save more and consume less. The rate at which confidence is dropping in the UK will likely lead to a drop in spending and will impact demand.
How online retailers are trying to resolve confidence
Online shopping has not only made it easier for consumers to compare prices, but also for tech retailers to monitor consumer confidence. In the first quarter of this year, over 70 per cent of online shopping baskets were abandoned.
Many online retailers have implemented buy now, pay later schemes (BNPL) to drive sales, but these can lead consumers to enter a cycle of debt. While BNPL schemes may help to reduce basket abandonment in the short-term, they are not sustainable enough to increase consumer confidence in the long run.
Citizens Advice highlighted that the majority of people using BNPL are already living off overdrafts and credit cards. In other words, they are using one debt to pay off another.
Increasing consumer confidence
UK companies can improve consumer confidence in the market by going the extra mile to support their employees’ financial well-being. An easy way to do this is to eradicate the feast and famine cycle of monthly payroll and instead offer employees more frequent and flexible pay.
Flexible pay gives employees greater control over cash flow and allows for more efficient budgeting. It would encourage consumer confidence while also reducing the likelihood of people entering debt by using loans and credit.
A flexible payment policy would allow employees to access their wages on either a monthly, weekly, or daily basis. Fintechs which offer flexible payment solutions also provide financial data, such as real-time wage updates which can help employees manage their monthly budgets.
If employees were offered flexible access to their pay, they would be able to enhance their financial flexibility without relying on BNPL or short-term loan schemes.
By improving the financial well-being of employees, their consumer confidence is likely to grow as employees have greater financial freedom and flexibility.
There are also benefits for employers, such as improved productivity, reduced absenteeism and the potential to attract and retain talent. Flexible pay can improve cash flow within companies as they can outsource one of their largest expenditures – the monthly payroll.
Overall, UK households are facing unprecedented economic hardships due to the cost-of-living crisis. By providing flexible pay, we can enhance consumer confidence and provide a much-needed boost to people and businesses across the UK.