Carta Worldwide Team

How fintech is helping with the cost of living crisis

How fintech is helping with the cost of living crisis

With a recession no longer looming but officially here, the UK is facing some of its toughest months ahead in over a decade. Eight years of economic growth will be wiped out, mortgage repayments have climbed by multiples, and inflation is at a 41-year high, over four times the Bank of England’s target.

Throughout the eurozone, economists have scaled back their projections of a ‘deep winter recession’ this year. But projections for next year are worsening, with the eurozone’s output likely to shrink further rather than grow in 2023.

Surging energy prices and supply-side shortages have driven up the price tags on essentials such as food and drink. For the first time in 14 years, McDonalds has increased the price of its cheese burger by 20% – up from 99p to £1.19. As a result of such record rises, consumer attitudes towards money, saving and their overall financial stability have changed dramatically.

Recessions tend to see consumers switch to lower priced brands. In the UK, the majority (83%) of people list cost of living as their main economic concern. And changes to perceptions of products and their value can fundamentally alter how consumers buy in the future too, even if their willingness to pay rebounds in line with the economy.

The current climate presents an opportunity for fintech firms. Their genesis was the financial crash in 2008, which saw distrust of established banks spread and generate a need for new, more relatable brands. Then during Covid-19, fintech firms stepped up again. This time, they helped the most vulnerable to pay for essentials without having to leave the house. And now, fintech firms are well-positioned once again to help consumers make sense of their savings and expenditure, having developed richer features and functionality than traditional banks. 

There is already evidence of an uptick in consumer appetite for fintech to help them survive the cost-of-living crisis. Those UK consumers not using fintech expect to manage over half (58%) of their finances digitally over the next six months, up from 52% today. Consumers say fintech can save them time, and make them feel much more in control of their finances.

Just some of the innovations to date include: 

1. Savings pots & rewards

Allowing consumers to organise their money into pots might seem simple, but it has taken years for some traditional banks to offer their customers this feature. Many of Europe’s largest high street banks still don’t. 

Hyperjar, a money saving app which also offers a debit card, gives customers rewards for setting their money aside into ‘jars’. The idea is to incentivise more thoughtful spending and better budgeting through exclusive discounts and special offers.

Rewards-as-a-service’ is a broader concept which comes under the umbrella of embedded finance. Card-linked rewards programmes help firms boost consumer reliance on their services, while helping them save money on day-to-day purchases – a feature of particular importance as we look down the nose of a recession.

2. Spending analysis

Close to half (44 per cent) of respondents in a Paysafe survey back in June said they have changed their payment habits in response to the rising cost of living. A further 40 per cent said they were shifting towards methods that enable them to track spending more accurately and almost a quarter (21 per cent) said they have avoided buying on credit.

Visualising to consumers how they spend is a great way of educating them on their habits. Personal finance app Emma does this. It allows people to allot budgets to different types of expenditure, and then shows them how much of that allotment they have used up throughout the month.

Other fintechs use artificial intelligence to detect outgoings and recommend cheaper alternatives. Snoop, a money saving app founded by ex-Virgin Money executives, will spot when is a good time for someone to switch providers, be that for energy, broadband, or their mobile network. This sort of forward thinking can take the pressure off. Snoop’s own research has found that the majority (74%) of 18 to 24-year-olds suffer from poor mental health caused by the stress of managing their finances.

3. Gamifying financial education

Making finance digestible can feel like a tall task. For those fintech firms targeting the youngest generations, gamifying content can be a great way to engage savers early on. Financial app and debit card for children, GoHenry, has launched an in-app programme called ‘Money Missions’. These are gamified money lessons which follow national education guidelines.

The gamification opportunity lies in education, rather than in the actual management of a customers’ money – which has been warned against by the UK watchdog. E-learning platform Female Invest is attempting to bridge the gender gap in financial education, by creating a women-only space propped up with video lessons, articles and quizzes. 

Anything fintech firms are doing to reduce awkwardness around financial discussions is a good thing during a crisis. Digital banking service Revolut launched an instant messaging feature, Revolut Chat, this year. The idea is to ‘take the awkwardness out of talking about money’.

4. Tapping pension contributions

A big pot of money which is often forgotten about is people’s pensions. While it’s designed to remain untouched until people’s 50s, if tapped earlier it could offer immediate relief for those most severely hit by the cost-of-living crisis.

Pensions and savings provider Cushon launched two products to help people access their pension savings before the cost-of-living crisis began. Now, it has noted a spike in interest for them. One is ‘Pension Redirect’ which allows people to shift workplace pension contributions into accessible savings, while the other is ‘Salary Exchange’ which allows someone to take a salary cut and still contribute into their pension.

Another fintech firm in this space, PensionBee, allows consumers to combine their pensions and see them all in one place. This helps both younger and older generations plan for the future. On a very basic level, seeing a large pot of money built up over years of employment which is safe and secure can offer huge consolation during difficult times like these.

5. Buy now, pay later

Buy now, pay later has proven particularly popular in recent years, as younger generations grow more afraid of the traditional credit their parents used with average interest rates of over 20%. Although buy now, pay later options can come with drawbacks such as missed payment penalties, they don’t all come with hefty interest payments attached to them. 

Almost half (48%) of Generation Z plan to use buy now, pay later services this holiday season, followed by millennials (47%), Gen X (40%) and then baby boomers (14%). A fifth said they are using buy now, pay later options because they’re low on cash.

Klarna has backed the product as a means of payment for essentials like groceries after debt charities, though products such as its ‘Pay in 3 instalments’ and ‘Pay in 30 days’ are unregulated so the UK watchdog insists they come with “fair and prominent” warnings of the risks.

An ‘untouchable world’ in reach

It’s clear fintech firms have managed to create dynamic brands which catch the eye of younger consumers more than traditional brands ever will. This gives fintech firms a relevant platform on which to tackle the global financial education gap, a gap which can become harmful if unaddressed during difficult times. 

Carta Wordwide’s Chief Operations Officer, Richard Wray, said traditional banking has always felt like an “untouchable world” for the general public. 

He added: “With so much uncertainty ahead, people want to bank with businesses that feel more on their level. Whether it’s how they communicate, or how easy they are to use, the fundamentals remain the same. People want to use brands with no agenda other than wanting to help them in difficult times.”

In October, fintech firms in the UK came together to form a coalition to combat the cost-of-living crisis. Members include, Zopa, ClearScore, Google Cloud and Hargreaves Lansdown. Called the 2025 Fintech Pledge, it is designed to connect consumers to fintech platforms that make savings work harder, improve credit scores, consolidate debt, and lower utility bills. 

While investment in fintech has been slowing, it has by no means dried up and there is still an appetite among investors to prop up brands with agendas focused on tackling rather than capitalising off the cost-of-living crisis. 

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Carta Worldwide

The Carta Worldwide team has over 100 years of payment experience advising both established businesses and disruptors. Going beyond bits and bytes, Carta Worldwide’s team supports everything from accelerating time to market to working towards sustainable disruption strategies, ensuring its clients are set for success.