Reconnecting house associations with local financial support services and developing a rulebook regarding how government payments operate are just two ways organisations suffering from the UK’s economic situation can recover explains The Payments Association in its latest report.
The UK economy has navigated one shock after another in recent years. With the advent and aftermath of the Covid-19 pandemic, economic hardships are becoming more pronounced for many households, particularly those at the lower end of the income scale. In its report, Navigating the rising cost-of-living: Payments innovation as a game-changer, The Payments Association explores the cost-of-living crisis, the poverty premium and how fintech innovation can help mitigate the impacts of current economic hardships.
If fintech is harnessed correctly, not only will the impacts of current economic struggles be minimised, but it can also support the government’s welfare reform. This in turn can build a more inclusive and resilient financial system in the UK.
Fintech can be a light at the end of the tunnel
Inflation was at 7.8 per cent in April according to Office for National Statistics (ONS). This in addition to real wages continuing to fall, has resulted in the cost of goods and services outpacing wage growth for many of the population. Particularly those on lower incomes.
However, the UK’s burgeoning fintech sector provides real hope. A recent Innovate Finance report highlighted how the UK fintech sector is one of the fastest-growing industries. It contributed £44billionn to the UK economy in 2022, up by 20 per cent from the previous year.
This growth is fuelled by continuous innovation that holds considerable promise to help those struggling with the cost-of-living crisis. For instance, fintech solutions can provide more tailored options for payments, saving, borrowing, and managing money. This bypasses the traditional banking system, which is often seen as more expensive and less accessible to those on low incomes.
Recommendations for change
The Payments Association sat down with payments companies, third-sector bodies and local councils to gather data for its report. Its respondents identified communities that require more support during the cost-of-living crisis. This includes those on the lowest incomes, as well as the market solutions already available in supporting them.
Looking to help guide change, the report includes recommendations for the government, including:
- Open technical standards for the government’s social payment infrastructure.
- The development of a rulebook regarding how government payments operate.
- Structured funding for social sector-led payment innovation, while also giving a launchpad for their ideas and insights into the financial lives and challenges faced by underserved groups like the elderly and those out of work or in debt.
- Reconnecting house associations with local financial support services.
The Payment Association’s Project Inclusion has the specific purpose to inform and collaborate with government, regulators and third sector bodies. It looks to provide clarity on innovations and solutions in payments that can reduce financial exclusion and the poverty premium. It seeks to achieve this by collaborating with industry bodies, developing thought-leadership campaigns, and informing regulatory and legislative decisions.
Pooja Bhachu, director, public policy, UK&I, Mastercard – project lead for project inclusion at The Payments Association, said: “Payments innovations can help people strengthen their financial capabilities, make them more resilient to financial shocks, and improve their long term financial security. But industry and policymakers must work together to harness this innovation.
“They can do that by improving access to digital financial services, creating new services that are inclusive by design, and improving the regulatory environment for fintechs who are tackling social issues.”
Neil Harris, chair, The Inclusion Foundation – chair, The Payments Association advisory board, added: “Industry and policymakers must work together to open up and improve access to digital financial services and take active steps to involve those people most affected by financial exclusion and the ongoing cost-of-living crisis. With this report, we hope to not only move the discussion forward but catalyse much-needed action.”
Tony Craddock, director general of The Payments Association, commented: “We are very excited to share the results of this report. Every one of us has experienced or knows someone who has been impacted by the economic hardships that are at an all-time high. Therefore, it is vitally important that our industry leads the way to create change to build a brighter, better future.”