Inflation bites: We take a look at fintech consumer finance trends

We spoke to a range of experts about the changes expected in the space and how fintechs and regulators are changing services to protect consumers.

Inflation, fintech and the customer in a recession

According to the most recent report from the Bureau of Labor Statistics, detailed by Pew Research, the annual inflation rate in May 2022 was 8.6% and at its highest level since 1981, as measured by the price index to consumption. Since then, it has increased further, crippling both businesses and consumers.

Fintechs are responding to the global crisis, which has caused household spending and energy costs to spiral, wiping out large amounts of disposable income.

“In response to the increasing cost of living challenges our customers are facing and to keep pace with changing customer demand, we are working with our lenders to significantly expand our product offering,” says Joanne Robinson, director of lenders at UK auto finance fintech Zuto.

“We are reviewing our products to ensure we have choices, a range of options for customers in different circumstances – including PCP, personal loans, refinance products and hire purchase options available at more long term.”

Is fintech doing enough to help customers?

But are these actions enough to curb the potential collapse in spending and the resulting depression?

Neil Kadagathur, co-founder and CEO of British fintech lender Credit Spring, believes the cost of living crisis has led to increased scrutiny of financial services companies by the regulator to ensure consumers are treated fairly and protected.

He says an increased focus on customer impact should be welcomed by the industry. “The financial services industry has a duty to protect customers, especially in today’s financial landscape. Moneylenders, for example, have long had a bad reputation among borrowers – four in ten (43%) think moneylenders encourage them to take out more money than they can afford and less than one in five (17%) view lenders as responsible businesses that care about their financial well-being.”

As a result, as he points out, more responsible and ethical business models are emerging across the industry to meet borrower demands and ensure their protection.

Kadagathur believes that financial services firms are increasingly adopting technology not only to improve customer experience and increase efficiency, but also to ensure vulnerable customers are treated fairly and better supported. “Using technologies such as open banking allows businesses to more accurately assess the suitability of a product and tailor it to someone’s needs. For lenders, this means being able to more accurately measure affordability and even tailor repayment options based on someone’s current financial situation, allowing them to provide more personalized support to borrowers.

BNPL, repayments and the credit crisis

Buy now, pay later services flourished in 2020 and 2021, with a boom in online shopping and financing-facilitated in-app retailers during the pandemic. But, in recent months, trouble has erupted in this booming financial sector as valuations of major BNPL providers, which have risen tenfold over COVID-19, have fallen back to pre-pandemic levels.

The problems have been caused by rising inflation and interest rates, as well as customers who are now struggling to repay installment debt they have accrued over longer periods.

Keith Serdon, commercial director of Mollie, explains: “Whether paying by direct debit, debit card or credit card, consumers are not always able to pay for goods in advance and in full – especially as we face potential recession and economic stress following the pandemic.

“As a result, we have seen the rise of Buy Now, Pay Later (BNPL) in usage and acceptance, especially with younger generations who are generally more digitally savvy. The latest analysis projects the payment method is expected to grow 50.5% on an annual basis to reach $29,906.2 million in 2022.”

However, as Serdon says, this rise in popularity is also leading to increased regulatory scrutiny for better consumer protection, with some critics viewing BNPL as just one more avenue for debt. A recent UK report using data from the Citizens Advice Bureau suggests this is at least partly true, as even in January this year data showed that at least 30% of UK BNPL clients were struggling to repay loans.

“Yet, BNPL is currently used by millions of people around the world. People are looking for payment methods that give them financial flexibility and a way that will allow them to use their purchasing power on their terms,” says Serdon.

Tom Voaden, head of strategic partnerships at BR-DGE, agrees. He says demand for BNPL services will continue to grow, but economic pressure is already translating into tighter lending regulations.

“We expect demand for BNPL to continue to grow as merchants look to meet changing consumer needs and support their customers in these challenging times with different payment methods. However, the risks associated with lending cannot be overlooked and it is becoming increasingly important that consumers are supported. Therefore, we welcome incoming regulation in the UK and other markets as a necessary means to protect consumers.

Technology will drive financial growth, despite the slowdown

Regardless of the economic climate, experts say technology will be key to continuing to drive growth in the fintech space. Over the past two years, millions more customers have embarked on digital fundraising and spending journeys – and many will continue to use these services. This is for two main reasons: first, because better economic choices can be made online – customers can search for the best deals; and, second, because the digital transaction space is constantly evolving, payments will become increasingly streamlined and attractive.

When asked which technology will be instrumental in driving industry growth, James Butland, Vice President of Financial Partnerships, Airwallex, replies: “In two words: faster payments. Consumers moving fully online and trusting an e-commerce site with their money are taking a huge leap of faith, and, with the risk of fraud escalating, there is more mistrust of digital payments.

He continues, “Given these concerns, moving to a faster payment solution will actually help reassure businesses, consumers and suppliers. Faster payouts mean money gets to its destination before “where’s my money?” arises, which ultimately improves consumer confidence.

Butland adds that, given the global nature of most businesses, innovation around technology — which enables faster, even real-time payments — will continue to drive industry growth. “It will also change the global economy for the better, bringing in lower costs, more certainty and even greater transparency.”