(Fin)Tech for good – cracking the code of financial wellbeing and inclusion

Financial stress tends to grow around the festive season. The pressure to spend forces people to balance the desire to fully celebrate the holidays, with the need to keep their finances in check.

Financial wellbeing is a longstanding issue for many people; and one that has been supercharged by the effects of the pandemic. This growing concern is pushing banks to explore how they can better help customers improve their situations, while more generally extending services to previously underrepresented sectors. Indeed, Yobota recently commissioned an independent survey that found that almost two-thirds (64%) of UK banking and financial services firms plan to invest in products that drive financial inclusion in 2022.

A key driving force behind this movement is the rise of fintech (financial technology) players, who have created innovative solutions that not only aim to help banks optimise products and transactions, but also enable individuals to achieve their financial goals, and do more with their money.

With this in mind, let’s look at how fintech is being used for good…

Personalising financial health

Standardised credit checking tools have traditionally been used to determine whether to offer someone a loan. It’s an imperfect system that often fails to account for unique but critical differences between personal circumstances, or penalises them for a low score.

Take someone who has a steady income and little to no debt; on the surface, this person is financially healthy and represents little risk for the financial institution in question. Yet as they’ve never had a credit card or borrowed money, they don’t have the credit history to qualify for a loan – and if they do, their rate might be set extremely high.

Accenture’s 2019 Global Financial Services Consumer Study found that the vast majority of customers (80%) would be willing to share data in return for personalised and convenient services. The impetus is on banks and financial services firms to convert this data into actionable insights, which in turn enable them to deliver tailored offerings based on actual usage and behaviour.

Thanks to the emergence of a new generation of cloud-native core banking platforms, companies can now deliver products that are priced on behaviour and can guide customers towards reduced charges or relevant promotions. These modern platforms support integrated data sets and a single source of truth, which give them the ability to create real-time and personalised experiences based on advanced analytics.

To return to our earlier example, financial institutions utilising such systems can offer customers the chance to lower their interest rate as their credit score increases – providing an incentive to improve their overall financial health, while also ensuring that customers aren’t being priced out.

A case in point

Financial health indicators have a strong bearing on other important aspects of a person’s life, such as whether or not they can rent an apartment.  

For the millions of tenants across the UK, the costs associated with renting a property can be sizeable. That’s before you even consider the significant upfront costs involved in tenancy deposits, which require individuals to front up potentially thousands of pounds.

In the past this has held people back, forcing them to stay in undesirable, or even dangerous, situations until they can gather the resources to move. New market entrants are here to solve such common pain points and give individuals more convenient and affordable options to choose from.

Neo-lenders like Fronted have risen expressly to help bridge the gap between tenancies, when a new deposit may be requested before an existing deposit has been released. Once a loan is agreed (with sophisticated technology working in real-time to assess applications and conduct identity and credit checks), money is sent directly to the estate agent, enabling customers to pay back the amount in manageable chunks. Revolutionary financial products like these offer a cheaper and lower-risk option than alternatives such as credit cards, payday loans and overdrafts – and ensure that people don’t  miss out on a property due to a lack of cash reserves.

As newer and smaller market players, fintechs have the dexterity needed to deliver products that are more targeted to a niche customer segment. Indeed, the experimental nature of creating an entirely new proposition acts as something of a deterrent for established institutions who already have a successful range of products that appeal to the everyday consumer. Fintechs, however, can create unique offerings that aren’t already available on the market – not a variation of an existing product, but an entirely new proposition.

Historically, such an endeavour would involve complicated, lengthy, not to mention costly, development timelines. Powered by modern, cloud native core banking systems, fintechs and neo-banks benefit from the ability to identify a problem and quickly develop an innovative solution to address specific challenges, or target a niche customer segment. As businesses align with their customers on their priorities, we can expect to see many more exciting innovations that have a positive impact on people’s lives, and finances.

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