Alastair Douglas, CEO of TotallyMoney
Fintech has a social conscience problem. Only 13% of Brits earn over 200% of the median income amount, yet recent research which delved into the profiles of the customers of challenger banks shows this percentage is much higher. Those earning over 200% of the median income comprise around 25% of the customer bases of Revolut, Monzo and Starling. This shows the extent to which fintech disproportionately caters to higher-income brackets. It is 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 – an amount totalling $232 billion USD.
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. However, this simply does not help or respond to 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 marginalised 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 service this group. The FCA’s new Consumer Duty, due to come into force next year, creates heightened expectations for consumer credit firms requiring them to deliver good outcomes in how they serve customers.
The disconnect between fintechs and the real world stands out even more against the backdrop of the current squeeze on household incomes. Inflation in on a dangerously high trajectory hitting 9.4% in July, the highest in 40 years and far higher than the predictions made earlier this year. Furthermore, figures from the ONS showed that 9 in 10 adults reported an increase in their 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 – an increase of 50% in just 6 years to 20.2 million. This group is the new ‘under-served’: those who are falling between the cracks of high-street lenders due to limited credit history, blemishes on their credit file, or volatile incomes. An additional nine million are ‘financially fragile’ and at risk of slipping into this category.
People’s data should work for them and not against them – and, for that to happen, it needs to be shared, not hoarded by financial companies and credit reference agencies. The current system prevents the most vulnerable from navigating their finances 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 enables only the sharing of data and that simply is not enough. Instead, we need to turn the tide and tap into the banking ecosystem to produce tangible outcomes for customers.
One solution involves analysing payment patterns to provide bespoke coaching in the lead up to a credit application. Another is giving access to additional data to build a better picture of a customer’s financial health. Open Banking has heralded an era of free-flowing financial information — this live, actionable data, including income and spending habits, should be used to help lenders to make more informed and fairer decisions on credit.
Education and support can also play an important role in helping those shut out of the credit system. Fintechs should be leveraging their platforms to offer resources to customers to help them better understand and manage their finances. At TotallyMoney, we are the only free service which provides customers with their live credit report and score. Customers receive personalised tips and recommendations to help them move forward to 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 marginalised customers. Even retail investing, a notoriously inaccessible sphere, has seen a boom in apps to improve financial education while opening up investment opportunities for all. It is time for the fintech industry to wake up and focus on growing its social conscience.