When we think of finance services contributions, fintech offerings can seem consumed by the prerequisite of a flashy user interface (UI). Focused on attracting commercial big earners and mass market consumers, flexible applications and digital-first are naturally the key offerings of many fintech firms. But, beyond glossy UI and the ‘big win’ consumers, does fintech allow enterprises to offer users enough help to understand and make the most of the financial system? And does the shape of today’s financial services mean some communities are falling through the gaps?
The UK is one of the leading financial centers across the globe, and, according to the government’s State of the Sector annual review, represents the most globally connected banking hub. It’s clear that when it comes to commercial finance, the sector knows its audience. The likes of regulatory sandboxes for supporting smaller firms, embedded finance pursuits, and faster cross-border payments with FX accessibility and blockchain finance show how fintech is cementing key digitalized pathways for commercial and international trade. A survey this year showed 81 percent of businesses responding that using online cross-border payments had helped their business to grow.
This same State of the Sector review, however, recognized key areas for improvement, calling for the financial sector to “introduce regulation that is better tailored to its domestic markets.” Though fintech brought a much-needed renovation to user experience, behind the razzle-dazzle, there remains a disconnect between financial services and its domestic users. As explained in the report, the implications of this are widespread, when it comes to ensuring the sector can “have the right skills going forward, remain attractive to highly skilled international talent and continue to provide expertise across the economy”.
At Fintech Week London, which ERP Today attended last month, one panel discussed this very topic, ‘Beyond glossy UI: supporting communities that matter’. As Nina Mohanty, founder of ethical savings hub Bloom Money put it, “We are the only industry where we force our customers to learn obscure jargon, to meet us where we are and serve them our product.”
Despite being one of the biggest sectors in the UK, finance has the reputation of being a bit of a select club, split between the number-literate elite and the rest of the population who have limited choice but to trust the number literate with their finances. The problem is that as finance and technology converge with fintech, the results are in danger of drowning consumers in jargon, leading to increasingly isolated users and missed opportunities for enterprises to grow funds.
During the panel, Charlotte Crosswell OBE, chair of Open Banking, said, “I think it’s really important that we look at the purpose of fintech – it isn’t just helping the top of society but all through society, both in the UK and overseas. It’s that knowledge and power behind sharing your data with somebody you trust, and I think we may have lost our way.”
Just last year, a survey showed that only 66 percent of consumers across the UK, Germany, France, Spain, Switzerland, and the Netherlands trust current financial services with their data. As explained by Martyn Wilson, head of UK financial services at NetApp in a recent Financial Times article, “It’s clear that more innovation is needed to build trust between UK consumers and automated financial services technology.”
Despite fintech offerings advocating for better user experiences, there’s no doubt that making financial decisions is vastly more complicated for today’s consumers. Interest rates on savings accounts have plummeted, pensions are less rewarding for the up-and-coming generations, and investments in financial markets are incredibly difficult to understand for the majority with little experience. Meanwhile, amongst this backdrop, consumers must shop around and hope to stumble upon a good deal, with a lack of trust in the idea of a one-stop-shop provided by the fintech sector.
Making a money literate populous
Not everyone is financially savvy enough to understand the best routes to grow their earnings. For the panel, these people are in danger of being left behind in the fintech drive to digitally innovate financial services, but not the key offerings.
“It’s a struggle for a huge chunk of society,” Crosswell explained. “What’s happened now is that with dreams like getting on the mortgage ladder being out of reach for so many people, you just see people wanting to use a disposable income so then you have this ease of payments, and then maybe not something to dream so much about.
“Even at the beginning of the pandemic, it is estimated that 12 million people in this country had less than £100 in their accounts. Those are people who obviously are suffering from poverty premium, who are really struggling to make money matter. Some people don’t have access to the internet or own a smartphone, and there are people still quite reliant on cash.”
For the fintech panel, the way forward was for financial enterprises to not only simplify the user experience but to create finance tools that educated users. A huge problem lies in the lack of financial understanding, with financial services negatively impacting those who lack financial education. For too many, teaching skipped out on the importance of a good credit score, how mortgage structures work, or the best route for individuals to save and grow earnings.
This lack of insight means funds are often left in low deposit accounts that fail to cover rising inflation. Plus, it means that the work to achieve financial goals isn’t actioned early enough or in the right way. Without enough work from the sector to mitigate risks in ways that are both helpful to consumers and fintech firms’ financial rewards, the result is that services are barred for larger groups of people labeled ‘risky’.
Silvia Mensdorff-Pouilly, head of European banking solutions at financial giant FIS said, “We have the power to be lobbying for more financial education. That’s for the good of our industry and for how we are perceived in the public eye, and ultimately, it will create wealth and prosperity.
“Fintech starts with making sure that when you test your products you think about those groups. My advice to financial systems creators is to think about ‘how can I simplify? And someone who wasn’t digitally savvy, could they still use this?’ Maybe build up a panel of people to look at your services who are not financially or digitally savvy to look at it and think about complexity and how you can reduce it.”
“Data is absolutely key, transparency is key,” Crosswell continued, “and what we need to do is help people understand how to make the best of their money, and how they can build that credit record up when sometimes the odds are stacked against them.”
Understanding the sectors being served
Also important for the panel was instead of adding a glossy UI to the same inflexible offerings, fintech needed to better understand consumers across a broader spectrum to stay in touch.
As raised by Mohanty: “In a financial system, we ask everyone to twist and contort themselves to fit what we think the perfect customer should look like. I was at Klarna a little over a year ago and felt like I was building the same products for the same people – those concerned about ‘am I consuming too much avocado toast? Is that why I can’t buy a house yet?’ The people I felt could most benefit from fintech weren’t being served.”
Firms such as Klarna have made profits by pushing potentially unhealthy patterns of ‘lifestyle saving’ onto consumers, with limited financial education to support affording repayments. The result has been that amongst current rising costs of living and mounting fears of a recession, investors rightly began to get cold feet and the buy now pay later firm has seen its valuation plunge 85 percent. Though simplifying borrowing for consumers on mass, the Klarna payday loan structure fails to mitigate risks in the right way.
Meanwhile, the availability of finance products that support real-use cases for consumers in a safe and financially savvy way is nowhere near the level of demand.
“If you are a practicing Muslim,” Mohanty continues, “and you are looking for a sharia-compliant loan, buy now pay later is interest-free so that is sure sharia-compliant – that’s great, right? So, can we start to look at different ways that our individual identities can build better products?”
Mohanty makes a fair point. The question should also be raised as to whether fintech firms can help eliminate unfair costing bias in these use cases. In the case of sharia-compliant buy-now-pay-later loans, how transparent can services like this be? How will the fees be calculated to remain fair and in line with equivalent APR loans?
The key to cracking the market fairly is understanding the opportunities being missed when people coming into the country slip through those gaps. Mohanty explains: “It’s a huge swath of people, 14 percent, of this country’s population is foreign-born. When a professor of physics is driving your Uber it’s because they cannot re-accredit themselves in this country for many reasons. I came across a dentist from Pakistan who is trying to retrain to become a dentist for the NHS. And he could not get a loan because he’s new to this country. He ended up going to a loan shark and getting a 60 percent APR loan to take his conversion of course.
“It highlights what the current system looks like. And that is our opportunity in this room. Every aspect of what you’re building has a ripple effect in someone’s life at the end of the day, whether you are a B2B or B2C company.”
Whether a startup or an established enterprise, there is a clear impact which can be made by the products on offer and how they are designed for users.
Feeding the fintech and finance job market
Fintech has a responsibility to train the next generation of fintech employees. For Crosswell, the crux of the issue lies in the future of fintech offerings: “The problem is, if we don’t put our mindset into the people we are there to serve and what they are using their financial products for, there is a good chance we are not building the next generation of products. Hopefully, that mindset will bring on the next generation of people working in the fintech sector who see this and understand the challenges and say ‘I want to be part of fixing that’.”
Whether assisting banks with white label offerings or driving innovations independently in the financial services market, fintech has a lot of potential to solve for enterprises the biases still present in the sector. For many experts in the field, these kinds of innovations will improve the lives of many consumers and fuel the future of fintech hiring. But also, it will take fintech from select niche markets to a much larger number of consumers, bringing in healthy growth for fintech coffers, too.