As cost-of-living crisis bites, how can financial services support their customers?

By Gaia Lamperti

Earlier this month, the World Bank warned of “stagflation” with the global economy facing weak growth and high inflation reminiscent of the 1970s, as the impact of a two-year pandemic is compounded by Russia’s invasion of Ukraine. While inflation and living costs hit record levels across the globe, financial services have the responsibility and opportunity to offer a higher level of support to their customers during tough economic times.

Banks need to get money management features right

More and more people are calling on their banks to better support them through the cost-of-living crisis, or they are prepared to switch to competitors who can offer a higher level of personalised service.

That is according to a new study of 5,000 banking customers worldwide by Personetics which revealed that nearly two-thirds (63%) said they have heard nothing from their bank in the past three months to help with money management. Those who have had some communication are unhappy about the generic advice received (66%), such as general economic news and information about inflation.

Less than 10% of banking customers had heard from their bank and received messages personalised to their individual situation, such as advice based on their current expenses or alerts about potential future difficulties. “The entire world is in the grip of a cost-of-living crisis but British families, in particular, aren’t getting the support they need from their bank,” Dorel Blitz, VP of Strategy & Business Development at Personetics explained to IBS Intelligence. 

This perceived lack of support is damaging banks’ reputations among customers, with a fifth of them feeling like their bank does not care about their financial needs. Blitz continued: “Our research reveals that customers are already crying out for this kind of support as 54% of UK banking customers want automated money-management services to help them during this crisis. Specifically, 29% would like suggestions on how much money they could save each month and 21% expect their bank to identify signs of financial stress in advance and provide solutions. If banks embrace this level of personalised support, they stand to increase loyalty and customer lifetime value. Ignore the problem and customers are willing to switch to a competitor who can help them.”  

Indeed, beyond bringing to the surface banks’ shortcomings in times of financial stress, the findings open an opportunity for financial institutions as they can “become part of the solution and build stronger customer relationships,” as Blitz pointed out.  “Harnessing customers’ financial transaction data would allow banks to offer personalised guidance and advice at scale to help people make better money management decisions, in turn building their financial well-being and resilience.”

If banks get this proactive money management support right, they stand to retain existing customers and win new ones. Well over half (58%) of banking customers would consider switching to a bank that offers better money management features. In particular, they are looking for: help with growing their money (automated savings, debt payoffs and investments – 27%); and helping them spend and budget smarter and save money automatically (25%).

Alternative payment methods offer greater control and flexibility

As inflation rises, consumers are also increasingly leaning toward payment methods that help track spending, such as digital wallets and eCash thanks to their money management features. About 44% of consumers have already changed their online payment habits and are avoiding buying on credit, according to new research by Paysafe which surveyed 11,000 consumers across Europe, North America and Latin America.

Chirag Patel, CEO of Paysafe’s Digital Wallets division, commented: “With fuel and food prices at an all-time high, our findings clearly show households globally are changing their payment methods to keep a closer eye on how much they’re spending. While the use of many traditional payment types is on the rise, we’re also seeing a spike in alternative methods such as digital wallets and a shift to eCash. To support consumers during this time, and grow customer loyalty, merchants should focus on offering a broad range of payment methods that reflect consumers’ wish for greater control and flexibility.”

While debit cards and credit cards still have an appeal and remain the most popular payment methods, cash is also seeing a resurgence, after dipping in 2020 due to the pandemic. The report found that 70% of consumers said they’d be worried if they could no longer access cash, and 59% still think it is the most reliable form of payment. Increasingly, 13% are using eCash more often compared to last year due to the cost-of-living crisis.

New tech solutions can help to close the savings gap

Frustration over their inability to save during the current tough economic conditions led the youngest demographics like Gen Z and Millennials to explore new ways to build up savings.

GoCardless found out that the savings strife is forcing younger generations to rethink how they manage their finances, as four in 10 Gen Z and Millennials admit they find it difficult to develop spending habits that would help them meet their financial goals and worry about paying off debts like credit cards and student loans. 

The UK,  thanks to Open Banking technology, will start to introduce Variable Recurring Payments (VRPs) this summer, a form of payment instruction that can be set up and used to make a series of future payments. The first type of VRP is “sweeping”, which will enable Brits to move their money easily between accounts that they own, such as from their current account to their investment account. VRPs will help people clear debts and build savings by putting their money to work, faster. 

This new tool is a perfect match for the demands of younger generations, with over half of consumers between 18-24 years old stating they would use new technology to automatically move their money to an account with a higher interest rate or to pay a debt, such as clearing the balance on their credit card, according to GoCardless research. 

“The introduction of VRPs opens the door to a simple and faster way to put spare funds to work, and we urge everyone to look out for VRPs; your bank could start to offer them as soon as July. It’s a great first step for those who don’t know where to start with money management and once you set them up, they’re automatic — perfect for those who are short on time,” commented Duncan Barrigan, Chief Product Officer and Chief Growth Officer at GoCardless.