Can the Cost-of-Living Crisis Be a Major Catalyst for Fintech Growth?

Thursday, 02/02/2023 | 09:34 GMT by Pedro Ferreira
  • Every challenge presents an opportunity.
crisis

With the words recession and inflation being tossed around more frequently, consumers seem scared of a potential escalation of the ongoing cost-of-living crisis, making it a prime opportunity for fintech to take the center stage.

Why a Cost-of-Living Crisis Can Be an Opportunity

The cost-of-living crisis is in essence a way of describing a prolonged fall in disposable incomes after taxes and after accounting for inflation.

As inflation surges wages to troubling new heights, it can outstrip both wages and benefits and, in tandem with tax and rate hikes, the crisis is only exacerbated.

As governments and regulatory entities begin drawing strategies and taking measures in terms of fiscal policy, the impact of an individual’s cost of living isn’t always felt directly, rather derives from big picture policies. These policies, in turn, aren’t really focusing on the middle ground, meaning the individual consumer and businesses.

Consequently, there are other players who seize the moment to make their impact on the financial landscape: fintechs.

What Can Neo-Banks and Fintechs Do to Help?

fintech cost-of-living-crisis

Despite not having the necessary resources nor the long-standing influence to sit at the policy makers table, given their reach, fintechs are still in a prime position to provide banking and financial products to millions of people.

Accordingly, that very same reach in tandem with fintechs' inherent agile nature can be a trump card in terms of providing support to many as individuals are met with financial hardships.

Fintechs Can Reach Where High Street Can’t

With BaaS (banking-as-a-service) banking products can be customized to their fullest and specifically tailored to meet the needs of both client segments and individual customers.

This provides ample opportunities for growth as new avenues can be explored and new demographics can be reached.

Now more than ever, this flexibility will allow them to support their clients with practical, no-nonsense financial solutions that can meet things like unexpected costs, sudden bills, and many other financial disruptions such as, for example, BNPL (buy now pay later).

In stark contrast with the many predatory credit products out there, providing a suitable line of credit and promoting credit usage in a responsible manner can be a great help in improving individuals' and families’ financial literacy and financial well-being.

As a smaller financial service provider, a neo-bank, digital bank, or a fintech is able to deploy targeted solutions for any user in any situation, even for those who struggle to meet their repayment terms.

Moreover, by leveraging big data, machine learning, and AI, fintechs can even assemble predictive models to help navigate costs and further study behavioral change in consumers.

The Fintech Challenge

The digital finance industry is growing by the day, however, the novelty of fintechs and neo-banks might still be having a hard time resonating with demographics other than the tech-savvy.

As such, if fintechs want to challenge the high-street, bridging the gap becomes quintessential as it is a way of building consumer confidence and a much more stable foundation going forward.

Leveraging open banking, fintechs can start providing their users with financial education materials, a financial management platform, and even using push notifications on certain touch points, making them more attractive given the increased financial literacy they provide.

Last words

While policy management will hopefully resolve the cost-of-living crisis, it is the average individual who will feel its effects the most.

As such, it is up to every financial institution to put their consumers at the heart of their activities and, as we’ve seen, fintechs do that especially well.

If fintechs can bridge the gap and expand into different segments of the population, their tailored products can certainly be a silver lining in a grim economic forecast.

With the words recession and inflation being tossed around more frequently, consumers seem scared of a potential escalation of the ongoing cost-of-living crisis, making it a prime opportunity for fintech to take the center stage.

Why a Cost-of-Living Crisis Can Be an Opportunity

The cost-of-living crisis is in essence a way of describing a prolonged fall in disposable incomes after taxes and after accounting for inflation.

As inflation surges wages to troubling new heights, it can outstrip both wages and benefits and, in tandem with tax and rate hikes, the crisis is only exacerbated.

As governments and regulatory entities begin drawing strategies and taking measures in terms of fiscal policy, the impact of an individual’s cost of living isn’t always felt directly, rather derives from big picture policies. These policies, in turn, aren’t really focusing on the middle ground, meaning the individual consumer and businesses.

Consequently, there are other players who seize the moment to make their impact on the financial landscape: fintechs.

What Can Neo-Banks and Fintechs Do to Help?

fintech cost-of-living-crisis

Despite not having the necessary resources nor the long-standing influence to sit at the policy makers table, given their reach, fintechs are still in a prime position to provide banking and financial products to millions of people.

Accordingly, that very same reach in tandem with fintechs' inherent agile nature can be a trump card in terms of providing support to many as individuals are met with financial hardships.

Fintechs Can Reach Where High Street Can’t

With BaaS (banking-as-a-service) banking products can be customized to their fullest and specifically tailored to meet the needs of both client segments and individual customers.

This provides ample opportunities for growth as new avenues can be explored and new demographics can be reached.

Now more than ever, this flexibility will allow them to support their clients with practical, no-nonsense financial solutions that can meet things like unexpected costs, sudden bills, and many other financial disruptions such as, for example, BNPL (buy now pay later).

In stark contrast with the many predatory credit products out there, providing a suitable line of credit and promoting credit usage in a responsible manner can be a great help in improving individuals' and families’ financial literacy and financial well-being.

As a smaller financial service provider, a neo-bank, digital bank, or a fintech is able to deploy targeted solutions for any user in any situation, even for those who struggle to meet their repayment terms.

Moreover, by leveraging big data, machine learning, and AI, fintechs can even assemble predictive models to help navigate costs and further study behavioral change in consumers.

The Fintech Challenge

The digital finance industry is growing by the day, however, the novelty of fintechs and neo-banks might still be having a hard time resonating with demographics other than the tech-savvy.

As such, if fintechs want to challenge the high-street, bridging the gap becomes quintessential as it is a way of building consumer confidence and a much more stable foundation going forward.

Leveraging open banking, fintechs can start providing their users with financial education materials, a financial management platform, and even using push notifications on certain touch points, making them more attractive given the increased financial literacy they provide.

Last words

While policy management will hopefully resolve the cost-of-living crisis, it is the average individual who will feel its effects the most.

As such, it is up to every financial institution to put their consumers at the heart of their activities and, as we’ve seen, fintechs do that especially well.

If fintechs can bridge the gap and expand into different segments of the population, their tailored products can certainly be a silver lining in a grim economic forecast.

About the Author: Pedro Ferreira
Pedro Ferreira
  • 775 Articles
  • 17 Followers
About the Author: Pedro Ferreira
  • 775 Articles
  • 17 Followers

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