How fintech can help achieve financial well-being

To say that our personal finances are currently under extreme pressure is perhaps one of the biggest understatements you will read today.

High interest rates create major difficulties for homeowners looking for a manageable mortgage. In fact, lenders are pulling many deals out of the market because of concerns about customers’ ability to meet the skyrocketing payments, leaving them to face a struggle to hold on to their homes. In addition, both homeowners and businesses face ever-increasing energy bills, which means that people are faced with a stark choice about whether they want to eat or heat this winter.

Add to this general price increases across the board, including for everyday supermarkets, and you begin to see why a large proportion of people are worried about their finances.

But despite this rocky outlook, it’s still important to be in control of your finances for the sake of your overall financial well-being.

Financial well-being is about feeling secure and in control. It’s knowing you can pay your bills today, can handle the unexpected, and are on your way to a healthy financial future. In short, it makes you feel safe and empowered, even in times of financial pressure.

The question is, how can we keep financial well-being on track, even in these difficult times?

Foster a savings support network

According to a survey of social trends in the UK, almost half (46%) of adults claim they will not be able to save money in the next 12 months.

It goes without saying that this has caused serious concern within the UK government, who recognize that they need to offer some encouragement and support. The result is the formation of the UK Strategy for Financial Wellbeing, which is a 10-year framework developed by MaPS to help people get the most out of their money and pensions.

The strategy outlines some key goals, including giving 2 million more children and young people a proper financial education. Research from MaPS identified 11.1 million adults of working age with low to modest incomes who do not save regularly. This led to the creation of the Nation of Savers initiative, which aims to encourage more people to get into the habit of saving regularly by 2030.

Using digital tools to emphasize the message of financial well-being

Digital banks have increased in popularity in recent years. By 2022, approximately 203 million people will use digital banking services, and this number is expected to reach 218 million by 2025.

Digital banking has empowered consumers in a number of ways. It has made it possible for users to receive salaries and send money to their loved ones in a safe, cheap and fast way. Consumers can easily open individual bank accounts, giving them the freedom to do whatever they want with their money.

And crucially, most digital banks offer features that help users keep track of their income and expenses, giving more people access to easy-to-use financial management tools. It is these tools that should be highlighted as an important tool to help people save – even if the amount put aside is small. These tools are also an important way to take control of your finances, whether to pay bills or transfer money. These tools include the following:

• Alerts – Many digital banks use push notifications to notify their customers when money has been spent or the balance is running low, giving consumers greater transparency about where their money is going. Consumers can then adjust their habits accordingly.
• Spending meters and budget tools – By providing regular expense reports, consumers can see their expenses divided into specific categories. Some banks even allow users to set a limit for each category, preventing them from going over budget on certain expenses.
• Automated savings – With automated savings, consumers can set up a certain amount to be hidden every month without having to think about it once.

In fact, financial management tools that were previously only available to consumers through a financial planner are now packaged into apps, giving consumers more control over what they spend and how they save.

Financial service providers should see this digital arsenal as a massive selling point to customers, one that will help customers feel they are taking control of their financial well-being.

Conclusion

Although an obvious point, the fact that people can only save if they have extra money to put aside after all expenses are paid needs to be emphasized. Current economic uncertainty prevents many people from doing this.

However, financial services providers – whether they are one of the digital only, or one of the more traditional providers looking to up the digital ante – should ensure that customers are aware of the existence of these important digital tools. Even if they cannot save money now, they will be able to use digital tools to keep track of their spending, or pay bills.

The important thing is that they take control of their finances; they actively manage them on a daily basis and achieve a sense of financial well-being. When they can save, they will be aware of these digital channels and will be much more likely to use them to put some money aside, which is good news for them, and good news for the wider financial services sector too.

With the financial services industry revolutionizing at an unprecedented pace, companies that still rely on core banking systems risk losing their competitive edge. Companies leading the shift recognize that their services must be agile and change as their industries and customers evolve.

Financial service providers need to be able to act quickly, and digital banking systems provide the foundation for this agility to flourish and to encourage customers to achieve an important sense of financial well-being.

About the author

Jerry Young is CEO of ieDigital, a portfolio company of Parabellum Investments. Jerry has more than 25 years of experience in financial services and software. Prior to joining ieDigital, Jerry worked for Fiserv leading their banking business in EMEA, Oracle Corporation responsible for banking and insurance, and he was CEO of FICO (Adeptra).