Across major economies everywhere, inflation and the current rapid rise in the cost of living is having a profound effect on the way people pay, save and bank, with many segments of the population – including the young and digital native – reverting to more traditional approaches to spending and saving such as the use of cash.
Meanwhile, concerns about fraud – and specifically the negative impact of being a victim of fraud – are approaching record levels as people recognise they simply can’t afford to lose money.
In the In the US, 92 percent of consumers have made significant adjustments to their financial habits, according to Bread Financial.
These include spending less, searching out sales promotions and buying generic rather than branded goods.
The phenomenon of young people returning to cash use to help them budget is not confined to the UK, with Americans under 35 also preferring cash to help them budget.
Despite this, cash-strapped consumers are still opting for credit in almost half (46 percent) of buying scenarios where the goods purchased cost more than $500.
Product mix: instant is everything
As the need to access cash fast grows more acute, savers and spenders alike are seeking instant access, prioritising speed over interest rate advantages for saving, and cost for spending.
In the UK, almost 20 percent of the population say they are accessing their savings more than a year ago, according to a separate study by Chase Financial.
While consumers agree that having competitive interest rates on their savings is important, instant access trumps all other considerations in the current environment.
To achieve instant payments, instant access – one might say, for short, faster and better control over their finances – consumers are increasingly turning to FinTechs for their financial services needs.
Plaid, an Open Banking network that powers digital financial experiences, has published The Fintech Effect, revealing that 84 percent of UK consumers are using FinTech to manage their money in 2022, with broad adoption across demographic groups.
Financial concerns are increasing existing users’ reliance on FinTech apps, as well as ushering in a wave of new FinTech users managing their finances digitally for the first time.
Over the next six months, Brits expect to manage 72 percent of their finances digitally on average, up from 67 percent today.
Among the benefits to consumers, 41 percent said FinTech enables them to understand their spending so that they can better manage their money. More than half (56 percent) said that FinTech saves them time, while 49 percent reported that it makes them feel more in control of their finances.
Confidence down, stress rising
Plaid’s study reports 62 percent of consumers say their financial stress has increased since last year, with 83 percent citing the rising cost of living as their main concern.
The number of people who felt confident in their relationship with money declined from 77 percent last year to 61 percent in 2022. This is being driven by a difficult economic backdrop as interest rates rise and inflation continues to bite.
“From budgeting apps and savings platforms to automated bill payments, FinTech is having a clear and consistent impact. When people use FinTech, they gain clear benefits of saved time and money, and increased control, which is exactly why adoption is persistent,” said Kat Cloud, UK Policy Lead at Plaid.
Given all of the economic uncertainty and the stress that results from that, FinTech tools will provide critical lifelines. However, to keep up this momentum, we urgently need to transition from Open Banking to Open Finance, enhancing people’s access to a wider range of their financial data.”
Finally, a new study from LexisNexis Risk Solutions reveals that consumers have curbed their “impulse buy” mindset and are moving towards more conscious spending habits.
Confirming Plaid’s findings, LexisNexis say consumers are increasingly dependent on tracking their purchases and monitoring their funds via mobile payment services – while six in ten financial institutions expect the current cost of living crisis to lead to an increase in fraud as criminals target vulnerable consumers struggling with bills with scams.
Although most leading banks are willing to invest more to protect consumers, one in three (30 percent) believe current anti-fraud systems aren’t sophisticated enough to keep up with fraudster’s ingenuity, a point made consistently by Payments Cards & Mobile in recent years.
This round-up of recent studies paints a grim picture in many ways.
The points of interest – and hope – in this bleak picture, however, come from consumers’ willingness to commit to better budgeting and management of their spending.
To achieve this, it would appear they are turning to online financial management tools and FinTech.
Whether the rise in fraud through the digital channel predicted by banks in these studies leads to a further increase in cash use is an open question – that said, it’s clear that criminals will continue to target the vulnerable with scams in an attempt to exploit their need for financial security.
The digital future is by no means certain, and more needs to be done to secure it. Otherwise, the current trend of a return to cash will only continue.
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