Sustaining Momentum: Driving Trust During Economic Downturns

In an era characterised by economic uncertainties and cost-of-living crises, the spotlight needs to turn towards increasing trust as a means of keeping the millions of people who will be affected by the current economic downturn inside the financial mainstream. It is estimated that 4% of the British population remains unbanked, trapped on the fringes of the financial system, predominantly due to economic hardship. Shockingly, this financial exclusion carries a heavy annual cost of £485 per person. Seeing data breaches in headlines doesn’t help: the UK neobank, Revolut, was recently hit by a ‘highly targeted cyberattack' that further damaged its reputation at an already difficult time for the startup. In tough economic times – consumers need to trust the brands they engage with to ensure security of their payments, and businesses want to retain that engagement and protect their bottom line.

Trust is key here, and it is a two-way street. Financial institutions (FIs) need to trust their customers, even if their lives and finances are complicated. Similarly, customers need to be able to trust that their FIs are a superior alternative to informal banking. At the crossroads of this question of trust is technology, which is where customers and FIs interact and therefore where trust begins.

The Cost-of-Living Crisis: Current Realities

The cost-of-living crisis, as it stands today, casts a shadow over many British households and businesses. Spiralling inflation, soaring energy prices, and stagnant wages have combined to create a challenging economic environment. Families are grappling with rising grocery bills, increased petrol costs, and the strain of keeping up with housing expenses – and businesses are also feeling the pinch due to rising operating costs. This crisis, compounded by the global economic instability resulting from the COVID-19 pandemic, has left many individuals and businesses financially vulnerable.

Inflation rates, a critical barometer of the cost-of-living crisis, have surged to levels not seen in years. Essential commodities, from food to fuel, are becoming increasingly expensive. This has a disproportionate impact on low-income individuals and smaller businesses, who are forced to allocate a larger share of their income to meet basic needs, leaving little for savings or investment back into their businesses.

Taking the point of businesses, even further, those in the payment space are potentially at even greater hardship to their peers. While companies in the energy, groceries and fuel spaces are reporting record profits, other businesses stand to lose out as consumers’ money is stretched thin. Generally, payments companies do well when there is a lot of transactions happening, and there could be far less during an economic downturn.

Predicting the Evolution of the Cost-of-Living Crisis

If the UK does indeed experience a recession in the near future, the financial challenges faced by the population are likely to intensify. The question of trust will be vital: consumers won’t want the added risks of using unproven services. Payments should not only work and cost as little as possible, but be secure, forming part of a trusted ecosystem.

Companies – particularly new and startup businesses – will have to do more than ever before to show that they can be trusted. They will need to be able to not just tell but show potential customers that they are a safer alternative to both established banks and the informal economy (using cash or turning to alternative payment methods, like cryptocurrency). Even though businesses will be short on funds, perhaps in a very significant way, their most pressing question will be whether customers trust them.

Fintech's Role in Fostering Financial Trust

In these challenging times, the fintech sector has a pivotal role to play in helping consumers and businesses through innovative solutions that improve everyday lives. Fintech companies are uniquely positioned to bridge the gap between the unbanked or underbanked and mainstream financial services by first and foremost fostering trust.

The central pillar of fostering trust is showing customers that you are on their side. Providing a cost-effective service, genuine value in the solution, terms that don’t unnecessarily exclude people, as well as transparency and security are all vital to not just retaining current customers (consumers and businesses) but bringing in those who might otherwise be excluded. I have always advocated a back to basics approach for businesses, and companies proving themselves through what they do rather than what they say.

Payments companies have a role to play here too. Those that can create bespoke payment systems instead of integrating one-size-fits-all solutions will be best placed to help develop ways for companies to offer solutions that fall outside of the financial mainstream. Such payments companies can also enable companies to simplify the complexity that can lead to financial exclusion: many people on the financial margins need to send money abroad or interact with their banks that may be in other countries. Multi-currency payments support means that they won’t face extra charges every time they use their current card for payments. Coupled with the ability to deploy digital banking platforms also means that people who can’t get into branches but can access the internet are able to have full access to finance.

In conclusion, the cost-of-living crisis and the possibility of recession have underscored the urgency of addressing trust in the UK’s financial systems. Fintech companies have a pivotal role to play in this endeavour, offering innovative solutions that create trust and build upon the momentum to get more people engaging with their finances digitally, while priming businesses with the best platform for sustained success. By actively engaging in efforts to promote trust during these trying times, fintech companies can not only contribute to economic resilience but also ensure that progress made in this crucial area is sustained and enhanced for the benefit of all.