what banks can learn from fintechs

what banks can learn from fintechs

In the current economic climate, as people all over the UK are grappling with record-high inflation and still-rising interest rates, it’s been suggested that as much as 40%
of the population could fall into fuel poverty this coming winter
. In April 2022, almost 14% of households in the UK were struggling to afford
, with figures on the rise. 

Against this landscape, some people are likely to face yet more obstacles, lacking not just the financial means to get by, but also facing significant barriers when it comes to accessing financial services.

While fintech has become a mainstay in financial services and adoption has been steadily on the rise for years, the unfortunate reality is that many people still find themselves locked out of ‘mainstream’ banking services, or unable to access financial products
that fit their individual circumstances. According to research from the Financial Conduct Authority (FCA), there were 1.2 million UK adults without access to a bank account
in 2020. 

Ultimately, this financial exclusion affects people across different demographics, including young people, the elderly, those who receive a low income, people with disabilities, those in poverty and unemployed people. Because of this, the unbanked population
are forced to pay a ‘poverty premium’ for everyday products and services, simply because they are unable to access targeted products at lower prices online. 

As the cost-of-living continues to wreak havoc on the nation’s finances, clearly, urgent solutions are needed. Banks must innovate at pace to ensure that more people have access to financial services that are both appropriate and easily accessible, whatever
their individual requirements. In doing so, perhaps they could stand to learn a thing or two from fintechs – many of which are already creating novel, responsive products that are helping to ease the financial strain.

Why ‘one-size-fits-all’ doesn’t work

One of the main problems with legacy banking products on the market is that they’re too generic. Different customers naturally have different requirements, so taking a ‘one-size-fits-all’ approach to product ideation and design rarely pans out well. On the
other hand, fintechs are often praised for their willingness to change and adapt to specific market needs at pace – a far cry from the bureaucratic structures and red tape that can often hold legacy institutions back from swift innovation.

 By nature, fintechs are adept at creating niche products that home in on their customers’ specific pain points, based on a wealth of data and behavioural insights, which ensures that products are delivering against customer needs. 

When it comes to tackling financial exclusion head-on, banks must make the most of the technology at their disposal to pilot new products and explore product utilisation in different demographics and contexts. Understanding the lived experiences of customers
is the most important aspect of product development – with these crucial insights, banks can react rapidly to deliver new functionalities, features and products that really make a difference. 

By delivering this targeted support, banks can come closer to ensuring that people who currently use banking products and services don’t find themselves locked out in the future. In today’s climate, for example, there is a much greater scope for the delivery
of personalised financial education, seamlessly integrated into the user experience. While most banks have educational resources embedded into their customer journey in some way, often these efforts don’t go far enough. 

Thanks to Open Banking and PSD2 principles, banks can learn from financial coaching apps like Cleo and Mint to ‘nudge’ users with notifications that shed light on their financial behaviours – encouraging positive actions and adding friction to fend off habitual
purchases. Depending on the demographic being served, some institutions might be able to support the unbanked population by adding new functionalities, for example, the ability to raise any problems pre-arrears – like missing a credit card repayment, or not
receiving enough income to pay the bills. In doing so, they can provide bespoke support and guidance, ensuring that nobody is left behind.

Collaboration is key

Time and time again, fintech has shown itself to provide a much broader range of financial services and products at lower prices, as well as better customer service than traditional players. Another thing that fintechs do well is partnerships. 

In the spirit of joining forces, more banks and financial institutions could benefit from joining forces with non-profits and Government bodies to gain a fuller understanding of the behavioural and social contexts of people who are financially excluded. At
the time of writing, this is more critical than ever – as energy and food bills creep up, the financial situation that many people find themselves in can only become more precarious without proper intervention. 

From there, these collaborations should enable banks to pilot better solutions and lobby for change – from launching ground-breaking user testing initiatives, to developing products alongside expert support agencies who work on the ground every day to advocate
for change. All products on the market must stand up to scrutiny from these institutions and keep inclusivity in mind at all junctures. 

Ultimately, the UK has just stepped into a financial crisis, and this will have an inevitably impact on the entire population. However, the underbanked people are likely to suffer disproportionately more, as having no access to a basic savings account has
made it even more difficult to counter the purchasing power erosion caused by inflation. Now is the time for financial institutions to step up and create products and services that can really make a difference. 

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