Inflation bites: We look at fintech consumer finance trends

As inflation rises globally and the cost of living crunch hits consumers hard, financial service providers are essential in easing the burden and helping their customers stay financially solvent. 

We spoke to a range of experts about expected changes in the space, and how fintechs and regulators are altering services to protect consumers. 

Inflation, fintech, and the customer during a recession

According to the most recent report from the Bureau of Labour Statistics, as detailed by Pew Research, the yearly inflation rate in May 2022 was 8.6% and at its highest level since 1981, as measured by the Consumer Price Index. Since then, it has risen further still, crippling companies and consumers alike.

Fintechs are responding to the global crisis, which has seen household expenses and energy costs spiral – thus wiping out large amounts of disposable income. 

“In response to the growing cost of living challenges that our customers are facing and to keep up with changing customer demand, we are working with our lenders to scale our product offering significantly,” says Joanne Robinson, Director of Lenders at the UK auto finance fintech Zuto. 

“We’re reviewing our products to make sure we have choices, a range of options for customers with different circumstances – including PCP, personal loans, refinancing products, and Hire Purchase options available over a longer term.”

Is fintech doing enough to help customers?

But are these actions enough to curb the potential spending crash and subsequent depression that may occur?

Neil Kadagathur, Co-Founder and CEO of the UK fintech lender Credit Spring, believes the cost of living crisis has led to increased scrutiny on financial services firms from the regulator to ensure that consumers are treated fairly and protected.

He says an increased focus on the impact to customers should be welcomed by the industry. “The financial services sector has a duty to protect customers, especially in the current financial landscape. Lenders, for example, have long had a poor reputation amongst borrowers – four in ten (43%) people believe lenders encourage them to take out more money than they can afford and fewer than one in five (17%) see lenders as responsible businesses that care about their financial wellbeing."

A result of this is, as he points out, that more responsible and ethical business models are emerging across the industry to meet the demands of borrowers and ensure they are protected. 

Kadagathur believes financial services firms are increasingly embracing technology to not only improve the customer experience and boost efficiencies, but also to ensure that vulnerable customers are treated fairly and are better supported. “Utilising technology such as open banking allows firms to more accurately assess the suitability of a product and tailor it to someone’s needs. For lenders, this means being able to more accurately measure affordability and even adapt repayment options based on someone’s current financial situation, enabling them to provide more tailored support to borrowers.”

BNPL, repayments and the credit slump

Buy Now, Pay Later services thrived during 2020 and 2021, as a boom in online shopping and embedded finance-facilitated retailers during the pandemic. But, in recent months, trouble has brewed in this super scaling financial sector as valuations among leading BNPL providers, which swelled ten-fold over COVID-19, tumbled back to pre-pandemic levels. 

The problems have been caused by rising inflation and interest rates, as well as customers who are now struggling to pay off the instalment debts they accrued during more plentiful times. 

Ken Serdons, Chief Commercial Officer at Mollie, explains: “Whether it’s direct debit, debit card or credit card payments, consumers are not always in a position to pay for goods upfront and in full – particularly as we face a prospective recession and economic strain following the pandemic. 

“As a result, we’ve seen the rise of Buy Now, Pay Later (BNPL) growing in both usage and acceptance, particularly with the younger generations who are usually more digitally savvy. The latest analysis predicts that the payment method is expected to grow by 50.5% on an annual basis to reach US$29906.2mn in 2022.”

However, as Serdons says, this rise in popularity is also leading to increased regulatory scrutiny for better consumer protection, as some critics dub BNPL as just another avenue for debt. A recent UK report using data from the Citizens Advice Bureau suggests that this is at least partly true, as even as far back as January this year, data showed that at least 30% of UK BNPL customers were struggling to repay the loans. 

“Still, BNPL is currently used by millions of people worldwide. People are looking for payment methods that offer them financial flexibility and a way that will allow them to utilise their purchasing power on their terms,” Serdons says.

Tom Voaden, Strategic Partnerships Lead at BR-DGE, agrees. He says demand for BNPL services will continue to grow, but that economic strain is already resulting in tighter lending regulations. 

“We expect demand for BNPL to continue to grow as merchants look to meet the evolving needs of consumers and support their customers through these difficult times with different payment methods. However, the risks of lending cannot be overlooked and it is becoming more important that consumers are supported. Therefore, we welcome the incoming regulation in the UK and other markets as a necessary means to protect consumers.”

Technology will drive financial growth, despite the downturn

Regardless of the economic climate, experts say technology will be key in continuing to drive growth in the fintech space. The past two years have seen millions more customers embark on digital finance and spending journeys – and many will continue to utilise these services. This is for two main reasons: firstly, because better economic choices can be made online – customers can shop around for the best deals; and, secondly, because the digital transactional space is constantly evolving, payments will become increasingly streamlined and attractive. 

When asked what technology will be instrumental in driving the sector’s growth, James Butland, Vice President of Financial Partnerships, Airwallex, responds:  “In two words: faster payments. Consumers moving fully online and trusting an ecommerce site with their money takes a huge leap of faith, and, with fraud risks escalating, there is more distrust around digital payments than ever before.”

He continues: “Given these concerns, switching to a faster payments solution will actually help to assure businesses, consumers, and suppliers. Faster payments mean that money arrives at the destination before the question of ‘where is my money?’ arises, which ultimately improves consumer trust.”

Butland adds that, given the global nature of most businesses, innovation around technology –  which enables faster, or even real-time, payments – will continue driving growth in the sector. “It will also change the global economy for the better, introducing lower cost, more certainty, and even greater transparency.”