Inflation Bites: We look at fintech trends for consumer finance

We spoke to a number of experts about expected changes in the area, and how fintechs and regulators are changing services to protect consumers.

Inflation, fintech and the customer during a recession

According to the latest report from the Bureau of Labor Statistics, as detailed by Pew Research, the annual inflation rate in May 2022 was 8.6% and at the highest level since 1981, as measured by the consumer price index. Since then, it has risen further, crippling both companies and consumers.

Fintechs are responding to the global crisis, which has seen household spending and energy costs spiral – wiping out large amounts of disposable income.

“In response to the increasing cost of living challenges faced by our customers and to keep pace with changing customer demand, we are working with our lenders to significantly scale our product offering,” says Joanne Robinson, Director of Lenders at UK Auto Finance. fintech Zuto.

“We are reviewing our products to ensure we have choice, a range of options for customers in different circumstances – including PCP, personal loans, refinance products and hire purchase options available over the longer term.”

Is fintech doing enough to help customers?

But are these actions enough to mitigate the potential spending crash and subsequent depression that could ensue?

Neil Kadagathur, co-founder and CEO of UK fintech lender Credit Spring, believes the cost of living crisis has led to increased scrutiny of financial services firms by the regulator to ensure consumers are treated fairly and protected.

He says an increased focus on impact on customers should be welcomed by the industry. “The financial sector has a duty to protect customers, especially in the current economic landscape. For example, lenders have long had a bad reputation among borrowers – four in ten (43%) believe lenders encourage them to take out more money than they can afford, and fewer than one in five (17%) see lenders as responsible businesses that care about their financial well-being.”

One result of this, he points out, is that more responsible and ethical business models are emerging across the industry to meet the demands of borrowers and ensure they are protected.

Kadagathur believes that financial services firms are increasingly embracing technology to not only improve customer experience and increase efficiency, but also to ensure that vulnerable customers are treated fairly and are better supported. “Using technology like open banking, companies can more accurately assess the suitability of a product and tailor it to someone’s needs. For lenders, this means being able to measure affordability more accurately and even tailor repayment options based on someone’s current financial situation, enabling them to provide more tailored support to borrowers.”

BNPL, repayments and the credit decline

Buy now, pay later services flourished in 2020 and 2021, as a boom in online shopping and built-in finance-enabled retailers during the pandemic. But the past few months have seen trouble in this super-scaling financial sector as valuations among leading BNPL suppliers, which swelled tenfold in relation to COVID-19, fell back to pre-pandemic levels.

The problems have been caused by rising inflation and interest rates, as well as customers who are now struggling to pay off the installment debt they have incurred in more ample time.

Keith Serdon, Chief Commercial Officer at Mollie, explains: “Whether it’s direct debit, debit card or credit card payments, consumers aren’t always able to pay for items upfront and in full – especially as we face a potential recession and financial burden after the pandemic.

“As a result, we have seen the rise of Buy Now Pay Later (BNPL) grow in both usage and acceptance, especially with the younger generations who are typically more digitally savvy. The latest analysis predicts that the payment method is expected to grow by 50.5% on an annual basis to reach USD 29906.2 million in 2022.

But, as Serdon says, this rise in popularity is also leading to increased regulatory scrutiny for better consumer protection, as some critics call BNPL just another avenue for debt. A recent report from the UK using data from the Citizens Advice Bureau suggests this is at least partially true, as data as far back as January this year showed that at least 30% of UK BNPL customers were struggling to repay their loans.

“Yet BNPL is currently used by millions of people around the world. People are looking for payment methods that give them financial flexibility and a way that allows them to use their purchasing power on their terms,” ​​says Serdon.

Tom Voaden, Strategic Partnerships Lead at BR-DGE, agrees. He says that demand for BNPL services will continue to grow, but that the financial strain is already resulting in tighter lending regulations.

“We expect demand for BNPL to continue to grow as merchants look to meet the evolving needs of consumers and support customers through these difficult times with different payment methods. However, the risk of lending cannot be overlooked and it becomes more important that consumers are supported. We welcome the incoming regulation in the UK and other markets as a necessary means of protecting consumers.”

Technology will drive economic growth, despite the slowdown

Regardless of the economic climate, experts say technology will be key to continuing to drive growth in the fintech space. In the last two years, several million customers have embarked on digital economy and consumer journeys – and many will continue to use these services. This is for two main reasons: First, because better financial choices can be made online – customers can shop around for the best deals; and secondly, because the digital transaction space is constantly evolving, payments will become increasingly streamlined and attractive.

When asked what technology will help drive the sector’s growth, James Butland, vice president of financial partnerships, Airwallex, replies: “In two words: faster payments. Consumers moving fully online and trusting an e-commerce site with their money are taking a huge leap of faith, and with the risk of fraud escalating, there is more mistrust around digital payments than ever before.”

He continues: “Given these concerns, switching to a faster payment solution will actually help secure businesses, consumers and suppliers. Faster payments mean the money gets to its destination before the question of “where’s my money?” occurs, which ultimately improves consumer confidence.”

Butland adds that given the global nature of most businesses, innovation around technology – enabling faster, or even real-time, payments – will continue to drive growth in the sector. “It will also change the global economy for the better, introducing lower costs, more security and even greater transparency.”