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The financial technology (fintech) industry can do more to help people struggling financially during the current cost-of-living crisis, but regulatory change must come first.
With the cost of living set to rise further next month as energy bills increase by 20%, Innovate Finance is calling for the government to make changes to regulation around open banking, data fees and debt advice.
“Fintechs play a major role in improving personal finance and supporting consumers. As more can be done to support the deployment of budgeting and affordability algorithms with further regulatory support, Innovate Finance presents an action plan calling on UK regulation change to help consumers use fintech tools to get through the cost-of-living crisis,” said the trade body.
Innovate Finance CEO, Janine Hirt said there is more fintech companies can be doing to help people – especially with open banking, but only if there is regulatory change: “We are at a critical juncture, with consumers facing increasing pressures on their personal finances, and it’s essential there is a swift change in regulatory policy.”
Innovate Finance has suggested that open banking rules are extended to include a wider range of services, such as savings and mortgages. It says there should be caps on fees charged by banks to release customer data, and regulations on debt advice should be changed to enable more use of robo-advisers, which provide free advice to consumers.
“At a time when consumers everywhere are struggling with the increasing cost of living, fintechs are playing a critical role in helping all of us navigate through this challenging economic period. Currently, eight out of every 10 adults in the UK regularly use a fintech tool, and we can increase usage and value to the consumer by bringing corporates on board as well.”
The current financial struggles of people across the world could encourage the adoption of apps, just as the Covid-19 pandemic did but for different reasons.
For example, recent research from cloud-based card processing platform Marqeta, which looked at how much consumers were struggling due to high inflation and a slowing economy, found that people were looking for more credit options and trying to better manage their finances.
In its survey of more than 4,000 people, including 1,000 in the UK, Marqeta found that a lot of consumers were turning to credit to cope with the rising cost of living, with 57% of those surveyed having used credit cards to make ends meet over the past year.
Separately, Innovate Finance has responded to the second anniversary of the publication of the government’s Kalifa Review into UK fintech.
The Treasury-commissioned review of the UK’s future in financial technology, by WorldPay chairperson Ron Kalifa, said in February 2021 that the government must urgently introduce effective policies in five key areas as the fintech industry reached a major crossroads. He made recommendations in skills, spreading the industry nationally, investment, overseas trade, as well as policy and regulation.
Innovate Finance said as co-secretariat of the Kalifa Review, it is pleased to see the good progress that has been made two years on, but it added: “It is now critical to continue to build on this momentum. We have seen good progress on regulation that is looking at providing digital infrastructures for the future.”
But it warned that technology and the markets are evolving faster than ever and regulators need to keep pace with change: “There are currently different regulators at play especially on creating a framework for digital assets and a smart data economy. This can be challenging if we aim to create a consistent vision that can accelerate programme delivery and ensure the competitiveness of UK fintech.
“We need to ensure that the incumbent and heritage players in the UK are truly open to fully embracing open banking and the introduction of central bank digital currencies as opportunities to offer more value to their consumers – there is more progress to be made on this front and we look forward to working with the entire ecosystem to help drive this.”
Read more about fintech in the cost of living crisis
- The cost-of-living crisis could have a similar impact on fintech and digital banking as the Covid-19 pandemic did, inducing further innovation in the fintech sector.
- Buy now, pay later products from fintech providers accounted for 12% of the £8bn spent online in the UK in January, according to analysis.
- As millions of Brits struggle with their finances, many view tailored financial services as beneficial.