Having announced the election off the back of last week’s inflation figures, there’s no doubt that finances and the economy will be a hot topic in the debates over the next few weeks. On one hand, you’ll have the Prime Minister claiming victory over the fight on inflation — and on the other, you’ll have the opposition promising to keep ‘inflation, taxes and mortgages low’ if they come to power.
The truth is, whoever wins has a big job on their hands if they truly want to help voters move their finances forward. 15 years of stagnant wages has left workers more than ￡10,000 worse off, and while inflation has slowed, prices remain far higher than they were before the crisis. 1.6 million people will see their mortgage repayments hiked in 2024, and drivers are seeing car insurance premiums rise by a third.
The result is that 7.4 million people are heavily burdened by their domestic bills and credit commitments, one in three are missing payments, and 5.3 million households are in debt to their energy supplier. With limited government support, and a contraction in near prime lending, people are turning to unregulated and illegal money lending.
The government will need a clear plan of action if they’re serious about putting money back in people’s pockets, and it must include working closely with the financial services to create a system which works for everyone. Here’s three things which need to be prioritised:?
1. A vote of confidence for fintech
- The most recent cycle of fintech emerged from the 2008 financial crisis, promising to change the face of the financial services industry, and to turn it into a better, more customer-focused model. However, since then, it’s become distracted by unicorn statuses, hyper-valuations, IPOs, crypto, metal cards, and more recently, sausage rolls and spurious AI claims have been grabbing the headlines.
- Both the Labour Party and the Prime Minister have promised to embrace fintech and to support start-ups, but what we need is commitment. This means regulatory reforms, investment and support for fintechs who are focused using technology to improve financial services, drive financial inclusion, and better customer outcomes.
- A more transparent and efficient financial system which encourages growth and delivers value to the people who need it most, will not only give a boost to people’s finances, but also the economy.?
2. Bolster open banking
- Credit reporting and the system around it is outdated. It hasn’t kept pace with changes to how people live and work, and as such, it’s leaving behind renters, gig workers, the self-employed, the young, and those who are new to the country. And this is driving a continued growth of the under-served population, and increased inequality.
- The government must lead on change, supporting agile businesses who adopt it, while encouraging traditional institutions to stop dragging their heels. Along with the FCA, it has a duty to make sure that the system which allows people to spend, save and borrow is both inclusive and fit for purpose.?
- The wide-spread adoption of open banking will not only benefit consumers, in allowing them to better understand and manage their money, but also banks, who will have better insights into their customers' financial lives. This will result in greater personalisation, and a step forward for financial inclusion, while helping to halt the burgeoning number of people who are locked out of mainstream banking.
3. Regulate BNPL
- In recent years, we’ve seen a contraction in sub and near prime lending, with fewer banks willing to lend to this population. Buy Now Pay Later has helped fill the void, and it’s proved popular, with flexible, interest-free options for people needing to spread the costs of their purchases. As such, it’s now used by 14 million people, across all age groups and demographics. However, a third of customers have difficulty in tracking their payments, and one in four are missing payments and incurring fees. At the same time, some providers are struggling to make it work, with the likes of NatWest pulling BNPL products from the market after just two years.
- Last November, the Shadow Economic Secretary, Tulip Siddiq wrote to the government, calling for the regulation of BNPL. And whichever party comes into power, we expect this to be introduced ‘urgently, in a way that works for both the sector and consumers’ — as per the letter.
- Regulation will work in the favour of, banks, borrowers and BNPL providers. It’ll help improve transparency, standardise practices, protect customers best interests, and bring more competition to the market, allowing for newer, innovative lenders to compete with established players. And it’ll also make the sector more visible, so we have a better view of how people are managing their finances, instead of BNPL data falling between the cracks.
Without a plan of action, things will only worsen. The government in power must set out with a clear vision, and collaborate with the financial services industry to not just accelerate recovery, but to create a better system which works for everyone.
