In the coming weeks, tools that support the financially vulnerable will come to the fore. Fintech has the capacity to support the most vulnerable with affordable credit and promote financial wellness.
The COVID-19 crisis has sent shockwaves through the UK economy. Many companies have applied for business support, with around 8.7 million jobs currently furloughed through the Coronavirus Job Retention Scheme.
The fallout from the crisis is going to leave a large number of people economically impacted, from the already financially vulnerable to those who have experienced redundancy, extended furlough or reduced working hours. Unfortunately, this all points to one thing – a large increase in the number of people who are now financially at risk.
Fintech can be society’s safety net
Fintech has the capability to help plug the holes left by the welfare system and traditional financial services. It is transparent, agile and can reach large numbers of consumers at low cost. As of January 2020, it was estimated that 1.6 million people in the UK were still regularly using doorstep lenders to address shortfalls in cash flow. But it doesn’t have to be this way.
Fintech has some innovative solutions, for example, Wagestream, which enables employees to access accrued salary during the month rather than waiting for their payday. Others such as SalaryFits, already within reach of 700,000 employees in the UK, allows employees to access salary-deductible short- and long-term loans, alongside other financial services. Measures such as these negate the need for credit scoring and can free at-risk people from a cycle of unsustainable debt repayment.
Companies using underlying pre-payment technology can allow for cash cards to be used by those unable to access a full bank account. Open banking technology allows the self-employed access to financial products and government support that they might otherwise have been excluded from, and digital-first banks enable customers to micromanage their finances unlike ever before through accurate and instant analytics.
Furthermore, traditional non-banking financial institutions such as credit unions can take advantage of new technology to reduce their operational costs and pass this onto their customers. Digital Banks with a focus on financial wellbeing such as Dozens are looking to educate and empower people to benefit from the democratisation of financial services through technology.
The power of partnerships
Fintechs can amplify their reach by partnering with incumbent financial institutions. For example, open banking platform, Money Dashboard, allows users to connect their current accounts, savings accounts and credit cards from high street banks to make it easier to manage personal finances. In addition, businesses like Plaid, which was recently acquired by Visa, can accelerate partnerships by providing an interface connecting all kinds of financial institutions and fintechs.
The COVID-19 crisis is accelerating overall digital adoption across the population. But we must see further collaboration between fintech companies, banks, tech giants, financial institutions, investors, government, regulators and other stakeholders in order to speed up fintech adoption. Fintech was born out of the last great financial crisis and we should not hesitate to use it to help our economy recover in an increasingly digitised world.