Why fintech needs to grow a social conscience
Alastair Douglas, CEO of TotallyMoney
Fintech has a social conscience problem. Only 13% of Britons earn over 200% of the median income amount, but recent research which delved into the profiles of the customers of the challenger banks shows that this percentage is much higher. Those earning over 200% of the median income make up around 25% of the customer bases of Revolut, Monzo and Starling. This shows the extent to which fintech disproportionately appeals to higher income groups. It’s a similar story in the crypto world with just 0.01% of buyers controlling 27% of the total supply of Bitcoin, according to the US National Bureau of Economic Research – a total of US$232 billion.
Of course, it can be argued that fintech brands naturally appeal to more prime customers. They offer phone insurance, worldwide travel insurance, crypto trading and a shiny metal card for an additional fee. But this simply does not help or answer any of the needs of ordinary people. The fact remains that there is an opportunity and, amid the cost of living crisis, a responsibility for the fintech industry to refocus on marginalized customers. The Woolard Review highlighted the need for greater involvement of mainstream lenders in the non-prime credit markets, but mainstream providers still find it challenging to serve this group. The FCA’s new consumer duty, due to come into effect next year, creates increased expectations for consumer credit firms requiring them to deliver good results in the way they serve customers.
The link between fintech and the real world stands out even more against the background of today’s pressure on household incomes. Inflation is entering a dangerously high trajectory, reaching 9.4% in July, the highest in 40 years and well above forecasts earlier this year. Furthermore, figures from the ONS showed that 9 in 10 adults reported an increase in the cost of living during March, up by 25% since November 2021. 17% of adults also reported borrowing more money or using more credit than they did a year ago . .
On top of this, a report published by TotallyMoney and PwC found that just over one in three adults may struggle to access credit from mainstream lenders – a 50% increase in just 6 years to 20.2 million. This group is the new “underserved”: those who fall between the openings of lenders due to limited credit history, errors on the credit file or unstable income. A further nine million are “financially fragile” and are in danger of slipping into this category.
People’s data should work for them, not against them – and for that to happen, it needs to be shared, not stored by financial companies and credit reference agencies. Today’s system prevents the most vulnerable from navigating the economy effectively and making better decisions.
So what changes are needed for fintech to better serve the needs of everyone in society? Our current banking ecosystem only enables the sharing of data, and that is simply not enough. Instead, we must reverse the trend and make use of the banking ecosystem to produce concrete results for customers.
One solution involves analyzing payment patterns to provide tailored coaching ahead of a credit application. Another is to provide access to additional data to build a better picture of a customer’s financial health. Open Banking has ushered in an era of free-flowing financial information – this live, actionable data, including income and spending habits, should be used to help lenders make more informed and fair credit decisions.
Education and support can also play an important role in helping those who are shut out of the credit system. Fintechs should leverage their platforms to offer resources to clients to help them better understand and manage their finances. At TotallyMoney, we are the only free service that provides customers with their direct credit report and score. Customers receive personalized tips and recommendations to help them achieve their financial goals. This is going to remain our priority as we navigate the cost of living crisis together.
So many other fields have understood and adapted to support marginalized clients. Even retail investing, a notoriously inaccessible sphere, has seen a boom in apps to improve financial education while opening investment opportunities to all. It is time for the fintech industry to wake up and focus on raising its social conscience.
