Inflation has reached all-time highs, and financial services providers are under pressure to assist their customers. Here we explore the value of modern banking technologies and explain how banks and fintechs can leverage these technologies to help consumers cope with inflation.
The rising cost of living has caused an unprecedented squeeze on global living standards. In times of such economic uncertainty, it is the role of financial services providers to support the real economy; fortunately, modern banking platforms have given rise to a number of powerful new tools.
The rise of digital banking over the past decade, led by fintech innovators and accelerated during the global pandemic, has resulted in a wave of products and services that promote financial inclusion and improve financial literacy amongst consumers. Additionally, economists have long recognised that digital goods and services reduce actual and measured inflation.
The fintech industry has proven to be full of natural problem solvers, and incumbent banking institutions hold the power and capital to effect widespread change. Combined, these actors can leverage the digital (r)evolution in banking to help steer consumers through the inflation surge.
Banks must adapt to beat inflation
In a recently released report about the impact of inflation on European banking, Oliver Wyman’s team has mapped out possible inflationary scenarios, and made suggestions on how banks can best meet the challenges posed by inflation.
It argues that banks must “equip themselves with a new toolkit to help them navigate this period of high inflation”. Amongst other things, this toolkit includes enhanced support for their customers, and carefully reigning in costs without jeopardising transformation and modernisation projects.
A pragmatic approach is required to adequately tackle the challenges posed by inflation. Given the unpredictability of the situation, banks must be adaptable and nimble, ensuring that both their business is protected and their customers supported. With regards to end-customers, this entails:
- Fair treatment in relation to interest rate increases, with the ability to flexibly change rates
- Education on the impact of inflation through apps and mobile banking
- Support tools to help customers adjust their spending habits
Promoting financial literacy
The promotion of financial inclusion begins with tackling the issue of financial literacy (or illiteracy) amongst consumers.
Financial literacy is best described as “a combination of awareness, knowledge, skill, attitude, and behaviour necessary to make sound financial decisions and achieve individual financial wellbeing”.
At a time when budgets are increasingly squeezed, the ability to manage money intelligently becomes ever more important. Luckily, financial services providers are starting to understand this as well.
For example, RoosterMoney is promoting financial literacy by engaging with young people and their parents/guardians to help them understand the value of money and, in turn, help them to continuously make healthy financial choices.
Further, consumers are increasingly accessing banking services through digital means. This provides an important touchpoint through which financial services providers can engage with their customers and educate them on investing, funds, credits, loans, etc. In turn, this leads to greater engagement with the financial products and services of the business.
It is more important than ever for consumers to have access to services such as savings accounts, loan services and investment tools, and that these services are tailored to meet their specific needs. Not only has digital banking reduced the barriers to these services; improved analytical capabilities, supported by modern technologies, are also enabling personalisation at scale in financial services.
Additionally, modern banking platforms have now unlocked the power of data. Information that was once siloed and lost within legacy systems can now be orchestrated using modern banking systems to create a 360 view of the customer. With this information, financial institutions are able to better understand and support their customers.
A perfect example of this customer-centric approach can be found in SweepBank, a digital bank which uses hyper-personalisation to deliver a Netflix-like experience to its customers. Utilising transaction data to generate actionable insights, SweepBank provides its customers with suggestions based on their spending and saving habits to help them to better manage their money. In times of high inflation, such a personalised experience can be invaluable.
On a wider scale, the trend towards digital banking products and services stands to have an overall deflationary effect. First and foremost, these digital offerings tend to be less costly, and are more open to price comparison, which creates downward pressure by promoting competition. Financial businesses can reduce their overheads, while consumers benefit from better prices and increased transparency.
The benefits of digital banking in inflationary periods are clear, with both businesses and consumers standing to gain from carefully executed digital banking strategies. Financial services providers who can adapt their business to operate in the digital sphere, promote financial inclusion, and launch customer-centric services, will prove to be a vital lifeline for consumers – and those they help will not soon forget it.