Whilst money can’t buy happiness, it can certainly influence it. This is fast becoming a painful reality for millions of people as we’re barrelling through a cost-of-living crisis, massive layoffs, and global economic uncertainty. According to PwC’s research, over 86% of UK adults are concerned about the day-to-day cost of living, while a rising proportion of people struggle to pay even their basic necessities such as rent, mortgage or energy bills – according to ONS research.
You might be thinking – well we know this, but we’re here to talk about financial technology, not health. But what if the answer to health lies in technology? How can we, as the FinTech tribe, help people through the cost-of-living crisis? Is it even our place?
But what is financial health?
Financial health is a developing concept, which usually describes an individual’s relationship to money. This covers how one manages daily spending, how one thinks and acts in respect to saving and how and if they plan their financial outgoings.
There are 3 major elements of financial health:
1. Behaviour – basic financial hygiene, e.g. not spending more than one’s income, saving for the future, using credit as a tool to build their future
2. Knowledge – being able to understand everyday financial instruments and common terms like pension, credit score, interest rates
3. Tools – access to appropriate products and services to manage money
The role of FinTech in financial health
FinTech can have a massive impact in all three of these areas – beyond just providing the tools.
We have unprecedented amounts of data available to serve insights into human behaviour, which has been successfully leveraged by Meta, Amazon, Netflix, and the like. A similar approach can be applied to personal finances. We can use data and behavioural science to understand people’s innate behaviour, their complex feelings around money and to encourage positive habits. For example, we can gamify budgeting to make it feel more rewarding or create tools for impulse saving instead of impulse spending.
Knowledge is trending – 38% of young adults (18-34) are planning to learn more about personal finance in the next year. Videos tagged as #moneytok on TikTok have received over 10.6 billion views. Major banks, like HSBC, have launched their own financial education programs; while innovative start-ups like Your Juno and Finimize have engaged millions. So, what is the secret to their success? The answer is to work with how people want to receive information today. Bite-sized content, gamified achievements and an entertaining tone ensure that people, especially the younger generations, don’t just dive in but go on a journey with them.
Finally, FinTech has immense power to create accessible tools for people which can improve financial health. Investment apps, like FreeTrade or Moneybox, have opened the door to investments to anyone, without needing a large sum or specific knowledge upfront. Pension applications, like Pensionbee, have helped people get a clear view of their retirement funds. Even buy-now-pay-later (BNPL), when used right, can be helpful in spreading expenses and managing cash flow. However, none of these applications are without fault. We know the spread of BNPL has resulted in increased debt as a significant number of people have defaulted on their repayments. Investment applications had people dabble with stocks and shares without understanding risk levels, fees, or basic market dynamics. Tools are not a panacea – they need to work in combination with behaviour and education to make a positive difference.
What’s in it for FinTech?
Adding a positive impact on financial health to our requirement list for innovation – beyond profitability, scalability, regulations - may not be simple, but it can yield massive benefits.
Meet customer expectations and set yourself apart from the competition
Customers today expect products and services which are not only easy to use but make their lives better. A recent study by the Financial Health Network in the US has found that 84% of customers expect their primary financial institution to aid their financial health, yet only 14% of customers felt that their institution met this expectation.
Increase trust, loyalty and advocacy with your customers
We all want customers to trust us with their hard-earned money and shout our name from the rooftops. However, people don’t tend to trust financial services providers – according to the FCA only 42% of UK adults had confidence in the UK financial services industry.
Providing personalised services and making a tangible positive impact on the customer’s financial health can go a long way in building trust, loyalty, and advocacy.
Stay ahead of the curve in innovation
Currently, financial services still largely follow a product-focused structure. However, this set-up often fails to consider the customer’s lifestyle and consequentially how they interact with their finances. Switching to customer and outcome-centric thinking will not just put you at the forefront of innovation but provide you with insights and opportunities for years to come.
Contribute to Sustainable Development Growth
Financial health is the intermediate linkage between financial inclusion and key sustainable development goals (SDGs), including SDG 1(No Poverty), SDG 3(Good Health and Wellbeing), SDG 5 (Gender Equality), SDG 7 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities). It also contributes positively to ESG efforts – which is of growing importance for customers, investors and employees alike.
What does FinTech need to deliver on financial health?
FinTechs who are ready to take on the mantle for improving financial health need three fundamental things to succeed:
First, they need the freedom to rethink financial services from first principles. They need to invest in understanding people’s lifestyles and behaviour with money, and then apply design thinking practices to completely reimagine the services that could fit this.
Secondly, they need troves of high-quality customer data. Open banking has made strides in accessing financial data, yet not many providers have managed to achieve a 360-degree cross-functional and cross-provider view of their customers' finances yet.
Last, but not least, as there is no established recipe for success in financial health, FinTechs need to iterate fast and flexibly to find the right products and services.
To leverage the opportunities in financial health FinTechs need a solid technology partner who can deliver high-quality data, an event-based architecture for building behavioural tools and ready-to-run modules to help innovate at speed. At SAP Fioneer, FinTechs do not just get the technology that will enable their financial health innovations, but a solid partner at their side who will go on this journey together with them.
Financial health is here to stay – while the cost-of-living crisis might have highlighted the need for it, it is and will remain a crucial part of people's lives and overall health. Its rising awareness and importance will push the industry to fundamentally reimagine financial services. Those who leverage this opportunity first and best will carve out an unprecedented advantage and likely, a piece of history.
You can read Barbora's article and further industry insights in the latest edition of The Financial Technologist. Download your free copy here.
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