How Fintech can help tackle the cost of living crisis

Today’s world is vastly different to that of just over a decade ago, when the first fintechs began to emerge. Yet for all the economic, political and geopolitical disruption that’s happened since, there are some similarities with today’s world and that of the late ‘naughties’ and early ‘tens’. Today, people and small businesses face immense financial challenges, just as they did in the aftermath of the financial crisis. “The more things change, the more they stay the same.”

Partly, fintechs grew as a response to the financial crisis. The crisis exposed the complacency and inefficiency of banks and established financial institutions. Fintechs could help, they could provide better services to those struggling.

And they have helped. Fintechs have blossomed and many provide brilliant services. Of course, these are not provided as acts of altruism - they have to make money - and many provide services that help big businesses, or wealthier consumers, rather than those in real need of help. That’s business.

However, there is now a need for fintech to rediscover some of its early, pioneering spirit. With people and small businesses across and beyond the UK facing acute financial hardship, it’s time for the fintech sector to think about how it can help.

Fintechs are well placed to serve these groups. As lean businesses, they are often able to better service low margin customers. Fintechs are also able to get close to their customers and, unlike banks, they can act quickly to service their needs as they change and develop in testing times. At a time of financial stress, the sector can make a real difference.

Consider Wagestream. Wagestream aims to ‘improve the financial wellbeing of people in work’ and particularly seeks to help those in shift work. Wagestream users are able to access a portion of their wages in advance, something very useful to those on shift paychecks and which allows clearer financial planning and reduces financial stress. Users, and their employees, can see exactly how many hours they have worked and what that work is worth. Features like automated savings help users build financial security.

Wagestream is a special business, clearly one with a social purpose. However, not every fintech needs to have such a clear vision and social purpose to make a difference. Fixing an inefficiency within finance can lead to huge benefits for everyday people.

At Wise, we try to fix international payments. At first glance, it may not seem too thrilling. But each year, £150bn is lost in hidden payments as banks and established providers rip off consumers. Much of this money is lost by people for whom that hidden fee makes a huge difference, such as those sending money back home as remittances. Reducing these fees is a UN Sustainable Goal, and the motivation behind Wise.

Think about businesses

The trouble facing consumers this winter is clear, but so too is that facing businesses. This is especially the case for those operating physical stores or facilities like factories and warehouses that have high energy bills.

Big banks like to talk about how they care about and help small businesses, but often this hot air. Their services remain slow, expensive, inefficient. Again, fintech can help. Fintechs can help businesses streamline their operations and find new opportunities, something especially vital now.

Xero, a business started just before the fintech ‘boom’, is able to save SMBs huge amounts of time by streamlining their bookkeeping. It also runs a ‘marketplace’ that allows businesses to choose all sorts of different products and services that could aid what they do. By saving businesses this resource, they allow businesses to focus on other problems and, ideally, opportunities. When times are tough, this is invaluable.

SMBs often struggle to access finance, with big banks often deeming them too risky to loan capital to. In response, a range of specialised fintechs like iwoca, B-North and Funding Xchange have been set up to help SMBs access finance. Clearly, these services are going to be crucial in the coming months - not just for those SMBs trying to survive the winter, but also for those hardy entrepreneurs still looking to start businesses even now.

Perhaps most importantly, fintechs should think about how they can help SMBs grow. With Wise Business, we identified that small businesses are poorly serviced when it comes to international banking, limiting their ability to operate abroad. So, we try and identify their specific needs - such as managing expenses internationally or paying staff abroad - and help answer these so they can grow. As economies in the UK and Europe face a tough winter, finding opportunities overseas could be the difference between survival and closure for some businesses.

Fintechs are not charities. However, they are disrupting finance, an industry that remains bloated and complacent. By fixing the industry’s inefficiencies, fintechs make a real difference to the lives of people and small businesses. Tapping into that early pioneering spirit is the key to this as, once again, we face an uncertain economic outlook.