Author: Mohit Joshi, President, Infosys.

In the UK, inflation has hit a 40-year high and more than 3 in every 4 UK adults are worried about the rising cost of living  

The UK faces major socio-economic hurdles this winter; since the Covid-19 pandemic, the nation has seen rising interest rates, major supply chain disruption, and most recently a 40-year inflation high. Combined, these factors have triggered an unprecedented cost-of-living crisis, with nearly 90% of UK adults feeling the increase of the cost-of-living month on month and 3 in every 4 UK adults feeling worried about day to day costs.

Negative Economic Impact of UK’s Inflation

We are seeing disposable income stagnation, coupled with rising household debt – and this is especially the case for those on lower incomes. For vulnerable groups, 75% of their income is spent on simply managing essentials such as food, housing, and utilities. The lack of disposable income marks the UK’s biggest drop in living standards since the 1950s.The FCA estimates that a staggering 27.7 million people in the UK have low financial resilience. And, this year’s Annual Minimum Income Standard report cited that the soaring costs this winter will mean that many individuals and families will fall short of meeting what is classified as the minimum amount needed to live with basic dignity in the UK.

How UK Banks can help navigate this crisis

Banks have a critical and substantial role to play in ensuring financial wellbeing and in helping the everyday consumer navigate the day-to-day pressures. Although they may not solve the crisis, they can help equip the consumer to face it as best they can, such as encouraging individuals to increasingly budget and manage their personal finances closely. It is here that banks can lend a helping hand.

1. Improve financial awareness

A financial health check is one of the first steps we, as consumers, are likely to take as we prepare for the winter. Using technology, banks can help customers run a simple assessment of their financial health. From there they can work out how to organise their money and optimise their spending. To do this, banks can build simple and effective tools, such as budgeting apps, that can leverage the foundations of open banking and APIs to aggregate financial data, analyse it with powerful machine learning technologies, and provide tailored individual insights via easy-to-use consumer facing dashboards so customers can regularly make simple, informed financial decisions.

2. Create opportunities to save money

Over the winter consumers are expected to be looking at ways to save money where they can. Banks can help here by identifying cost-saving opportunities.  Examples include providing green mortgages that improve building insulation efficiency and reduce energy bills or using aggregation tools help consumers compare costs across utility providers. Machine learning and AI technologies can be used to sift through transaction data and notify consumers about better deals or discount vouchers on the market. And automating digital journeys can help banks offer simpler and more convenient experiences to encourage saving behaviours with consumers. Apps and tools that help with financial planning, financial visibility, spend analytics and promotes financial goal setting and tracking.

3. Empower groups to invest funds

Looking at long term saving, banks can support and empower consumers to invest in safe and secure funds, whether that be for higher education or buying a house. In recent years there has been plenty of development in the range of asset classes available to investors. Banks can differentiate their offerings by tailoring them digitally and personally, contextualising around their consumer’s ‘life milestones’ based on their unique circumstances. Digital tools can help the consumer set personal timelines, prioritise these savings over their expenses and empower them along a more long-term investment journey for long term financial security.

To do this, banks can collaborate FinTech companies to create and offer products such as direct indexing, fractional ownership of stocks and set up thematic investment pots. Adding in point solutions to encourage small daily investments towards a house deposit, can all help drive positive habits and protect consumers in the long run.

4. Facilitate affordable lending to borrowers

To facilitate affordable lending, banks can partner with fintech companies to streamline lending processes by improving compliance, accelerating customer onboarding, and simplifying loan disbursal to borrowers. In an inflationary and high-interest ecosystem, borrowers will experience greater stress and anxiety and it is up to banks to lead with empathy and improve accessibility to funds. This is especially true of those groups with low or no credit ratings that want to borrow money. Banks can use digital technologies to tap into non-traditional data sources to assess risk within these demographics and accordingly provide financial support.

5. Secure all money transfer channels

UK agencies have reported more than £2.35 billion losses in 2021-22 and 43% increase in cybercrime and fraud since Covid-19. Banks play an essential role in safeguarding customer data, detecting and preventing fraudulent transactions, and ensuring customer privacy especially during risky periods such as this crisis. The UK government has already announced £1,200 in financial stimulus to nearly eight million vulnerable households across the uk, but more might be needed (Gov.uk). Banks need to continue to invest in the latest cybersecurity technologies and educating employees in order to mitigate the risk of cybercrime

Golden Opportunity for UK Banks to Lead the Way with Trust

The UK banking industry worked hard to support its customers and stakeholders during the Covid-19 crisis. Actions such as timely & effective disbursement of Government Support Schemes through digital channels have boosted consumer trust, which had eroded following the 2007 financial crisis. They must now continue the path of collaboration and innovation to help consumers navigate this unprecedented cost-of-living crisis. And they must see it as an opportunity with a broader purpose. This will enable them to not merely gain market leadership but also help shape the future for individuals and of a resurgent UK.