Fintechs are stepping up to fight the cost of living crisis

It’s about “which side of the line do you want to be on,” says the founder of a startup that created one for free household spending dashboard to help with the cost of living crisis.

Greg Marshthe founder of fintech Noussays amid the current cost-of-living crisis fintechs have an ‘ethical duty’ not to exploit households, saying those that do could suffer the same fate as the collapsed payday lending sector.

His comments come amid a crisis that shows no signs of abating, wreaking economic havoc on households and businesses alike, with the threat of mass closures by SMEs just one example of its likely devastating impact.

But the crisis also presents a huge opportunity for fintech to showcase its value as quick-thinking disruptors that can quickly bring coveted services to vulnerable businesses and households to market.

Fintech born to fix a crisis

In fact, fintechs were born to fix crises, experts say. They point out that the fintech industry was born out of the 2008 financial crisis and rescued troubled businesses during Covid, so the current crisis is just the latest challenge fintech has to contend with and showcase its skills.

But, they add, it also raises a deeper question about whether those fintechs that act selflessly during the crisis, for example by offering discounted or free services, will reap the benefits after the crisis. Marsh adds: “I think the challenge for fintech is not only to make free tools and services available where they are useful to people, I also think they have an ethical duty not to exploit households in need.

“In the long run, we’ve seen what happens to companies where they haven’t met a bar. Look at what happened to the lending sector.”

Fintech response to the cost of living crisis

Fintechs have been fast out of the blocks offering a smorgasbord of services and financial aids to help consumers and business customers in the current situation.

Tools for financial education, tracking spending and budgeting, eliminating fees, one-time payments to employees are among the products and services that fintechs are rushing out.

Budget and money management products

Like others, Starling Bank launched an “updated” money management feature with a range of new categories such as essential expenses, rent and takeaways, in response to the cost of living crisis.

The new categories have proved “very popular”, says Starling, who has also launched a new budget planner to help her customers better cope with the current difficult economic climate.

Similarly, London-based Nous has used open banking and other data to create a dashboard to create a bespoke plan highlighting how customers’ bills may change during the crisis.

Marsh says many tens of thousands have signed up for the free plan, with enrollment demographics skewed toward those with lower incomes and (due to the use of open baking) a younger generation.

Marsh believes the free service will put it well ahead of the launch of its soon-to-be-launched paid service, as it looks to offer households a save-as-subscription service product.

He adds: “I think companies have to do their part. It wasn’t a huge amount of work to provide the dashboard and I think it helped us understand the situation that households are in.

“And I think it’s helped us sort of establish our credentials in the broader cost-of-living conversation that’s taking place.”

Derive pension contributions

Another fintech that has seen an increase in some of its services during the crisis is pension and savings providers Cushon.

Steve Watsondirector of policy and research Mr Cushon pointed to two of their services “which have gained a lot of traction”.

Both Pension Redirect (allowing individuals to move workplace pension contributions into available savings) and Salary Exchange (a tax-efficient way for individuals to take a pay cut while maintaining their pension contributions at a lower cost to the individual) were launched before the crisis, but Watson says interest has increased during the crisis, as fintechs can communicate their benefits in a simplified, jargon-free way.

Account fees removed

The cost of living crisis is not just confined to the UK and Europe is suffering too. To combat some of the pain, Germany’s N26 scrapped all custody fees – previously charged on accounts with balances over €50,000 – from July this year, among other things.

N26 said the move was in contrast to many of its competitors continuing to hit customers with fees. Alexander Weber, Head of Growth, N26, said: “N26 firmly believes that in times of economic uncertainty, consumers need their bank to help them get the most out of their money. We want to take the effort and stress out of managing your finances.”

Economic education

Economic education has been a priority for Moneyfarmsays the digital asset manager Chris Rudden, Head of Investment Consultants, Moneyfarm. Mr Rudden said: “As we have seen turbulent markets over the last year or so, and particularly since the start of this year, we have put even more emphasis on providing information.

“This has been a multi-channel approach, some of it has been written material via our newsletter and blog, we have tried to explain what is happening, the impact on savings and investment and what the options are.”

Others that have launched similar types of financial aid tools include CreditSpringthe subscription-based lender, which has launched a free tool for its members that provides them with financial information as well as details on accessing affordable credit.

Financially educate the young

GoHenry, financial app and debit card for kids, says the current financial turmoil is an opportunity to rethink educating kids about finances.

Louise Hillco-founder and COO told The charge: “Although it can be a daunting topic to approach, the cost of living crisis provides a perfect opportunity to start conversations around financial education with children.

“Parents may think that teaching their children about finance is a difficult task, but there are simple and practical ways to start, and this is where fintech really comes into its own.

“Fintechs can help bridge the financial literacy gap by making financial education a motivating, fun and rewarding way for kids to build confidence with money.”

Act selflessly and reap benefits

The current economic turmoil also raises questions about how fintechs, such as those that offer credit services, should behave in this period of uncertainty.

For example, some say the uncertain buy-now-pay-later regulatory landscape threatens to trap many buy-now-pay-later consumers in debt, and there are concerns that many are unaware of the risks to their credit and wallets.

“There are certainly some fintechs that primarily sell or have sold credit products,” says Marsh. “One has to be very careful about the ethics of how to do that in a fair way at a time when some households are facing acute and extreme anxiety and distress.”

For Watson, however, the situation has just put the spotlight on the inadequacy of the established financial service providers. Watson said “financial services have always been about accessibility.”

He added that the cost of living crisis has just highlighted “what’s really wrong” with established financial services that are too complex for many to understand.