As the cost-of-living crisis intensifies, Jos Henson Gric, member of Project Inclusion at the Payments Association and Founder and CEO at Flex, explores the question of whether we are running short of ideas when it comes to supporting consumers during the cost-of-living crisis.
When it comes to supporting customers through the cost of living crisis, it seems the payments sector has faded into the background and innovation has stalled. Project Inclusion intends to turn that around.
With the number of UK adults struggling with their expenses rapidly growing, the demand for products and services to help people manage and improve their financial situation will increase. This is an opportunity for the payments sector to show how it puts its customers first.
The 2008 financial crisis showed us how households respond to financial pressures. Spending gets slashed on non-essentials and bills are juggled but, after a while, it all comes crashing down.
Increasingly desperate people ask friends and family for help, but that’s not always an option, especially if they are in the same situation.
Scared of missing payments and harming their credit score, people turn to any option they can find. Items are sold, plans cancelled and then, finally, they often look for credit to plug the financial gap.
Out of lifelines
Due to previous missed payments, all too often the best, fastest and cheapest credit options are no longer available to those struggling the most. Instead, they take any loan they can get, no matter what the price.
Although this only slightly helps, the repayments then start to become harder to manage. Since prices are not going down and wages aren’t going up, people soon find themselves on the brink again.
This time, however, they are out of lifelines. Credit can’t save them, no matter what the APR or which dark corner of the internet the lender lives in, and this is only going to get worse.
This is the cost of living crisis. This is the crisis people are struggling with. However, it is worth remembering that, unfortunately, even before inflation hit, this was already a daily reality for over 10 million people in the UK. The combination of no savings, no insurance, and no affordable credit is a dangerous one which has left millions on the brink of a financial meltdown.
The house always wins
Financial pressures have dominated the daily lives of many individuals during the past decade of stagnant wages and austerity.
It turns out not having enough money to pay for basic needs is the primary cause of most people’s debt problems – not drugs, not gambling, not reckless frivolous spending or poor budgeting skills. It is just the lack of money.
It is a wide range of factors and situations that are each seemingly small, but together make up a game. Not a fun one, but a game in the casino, where the house always wins.
So, while the cost-of-living crisis is, and will continue to be, an extreme hardship for millions, there is some hope that we will come out the other side with a better economy and a better society. We will have a better understanding of the real financial pressures we all face no matter what our job, education or postcode.
We can already see this happening because, unlike during the pandemic and lockdown, this time it is companies that are stepping in to help people facing new financial pressures.
For example, Martin Lewis and mainstream websites like moneysavingexpert.com and Which, have been focusing almost exclusively on providing guides and tips about how to reduce energy bills and identify areas of spending that can be reduced.
Services from telecoms to utilities, as well as lenders, are also doing more to work with customers who are falling behind on their payments. It is, after all, in their best interest to identify signs of financial distress and provide affordable solutions to customers proactively, before the situation spirals out of control.
Is the payments sector falling behind?
So, what about the payments sector? What are we doing?
Fintech has been a leading area of the economy for a decade now, recognised for its rapid pace of innovation and huge range of apps and services available to consumers who love the easy access, futuristic features and for making their day-to-day use of money better.
But this was before the cost-of-living crisis. Now, the sector has seemingly become shy and faded into the background. I don’t believe these great start-ups and brilliant technology minds have all suddenly run out of ideas or decided they don’t want to help their customers.
So, why haven’t they? Where are the cost of living fintech apps? I know of one, because I am the founder. I know of more, but it is only a few handfuls and most of them existed before the current financial doom and gloom.
They were founded with the goal of serving those who were left behind by banks and mainstream financial services. They intended to help people struggling financially, to provide cheaper forms of credit, easier budgeting tools or to help with debt problems.
Unfortunately, that group of consumers – already large at 10 million UK adults – is about to grow much larger. But strangely, this is what I am optimistic about because now the problems of the cost of living crisis are considered mainstream issues. As such, the demand for products and services to help people manage and improve their financial situation will increase.
To learn more about Project Inclusion, visit: https://thepaymentsassociation.org/portfolio/project-inclusion/