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Recent years have helped highlight the harmful impact inflation on the consumer’s cost of living. Thanks to digital transformation initiatives and open banking, fintech can help customers circumvent rising costs.
As US inflation reaches 9.1% in 2022, the highest level since 1981, the burden has shifted from businesses to the consumer to make everyday items more expensive.
Simultaneously with the rise of inflation in the post-pandemic landscape, there has been an acceleration of digital transformation in fintech. This helped pave the way for payment technology that could play a significant role in mitigating the impact of inflation on products and services in the future.
At its core, technological innovation is deflationary because of its ability to save businesses money through automation while lowering operating costs. This combination of higher efficiency and lower costs can help slow and even reverse the effects of inflation.
Precisely for this reason78% of CFOs they said they will increase or maintain enterprise digital investment through 2023, even amid soaring inflation rates, according to research from Gartner.
For the fintech world, payment innovations can help not only keep the cost of doing business lower for businesses, but also provide a level of flexibility for consumers to actively realize savings at the point of sale.
Customized payment settings are helping more consumers navigate an uncertain economic ecosystem with more choices than ever before.
The Buy Now Pay Later (BNPL) industry is growing rapidly worldwide. In the UK, a country where inflation peaked at 11.1% in October 2022, along with interest rates rising to 5.25% in the months that followed, more adults than ever are using BNPL to tackle cost of living challenges.
From 202450% of UK adults used the services of BNPL at some point, which amounts to a total of about 26.4 million people. In comparison, only 36% used BNPL in early 2023.
Because ofthe influence of interest In terms of borrowing costs, consumers looking to make one-off purchases have sought refuge in BNPL’s services such as Klarna and Clearpay which are generally interest-free for pre-determined periods of time.
Theoretical, increase in BNPL meant that consumers could make essential purchases in a cost-of-living crisis and spread payments into the future when spending restrictions were less challenging.
However, this process carries the risk of opening the door to more debt for struggling consumers. As the UK entered recession in 2023, the data showed that frightened consumers had started to reject BNPL options as 19% of customers opted to pay in full to better manage their finances.
This suggests that true flexibility cannot be achieved in economically challenging environments without the freedom of data-driven payment options and insights that support stronger financial management.
According to the Harris Poll, consumers who save less than $100,000 annually$360 per year interest and bank fees with the help of fintech platforms.
Online banking services such as Chime, Dave, Varo and Go2Bank have helped pioneer products with low and no fees and early access to pay to prevent unnecessary overdraft fees, and can even provide very competitive interest-free credit cards.
Crucially, fintech platforms are becoming increasingly sophisticated when it comes to financial management. Tools like Copilot and Truebill have helped consumers lower their bills and track costs by analyzing monthly expenses and providing data-driven advice.
These transformative tools can help consumers mitigate the impact of inflation by making intelligent decisions about how to cut costs, when to shop and the best way to make payments.
This is all partopen banking revolution. While traditional banking works by building a direct relationship between banks and consumers, open banking brings together our many financial platforms and data in one place to provide a holistic view of our finances.
With the help of open banking tools, consumers can access a variety of third-party financial products and services. As a result, individuals can gain better control over their finances while discovering solutions tailored to their specific economic needs.
Not only can it open banking to simplify transactions, but it can also integrate with digital wallets to make recommendations on the best way to pay. In the future, we could see these custom recommendations become flexible enough to instantly analyze fees, conversion rates and other metadata to recommend cryptocurrency or CBDC (central bank digital currency) payments if they are more useful at the point of sale.
One of the biggest causes of inflation can be found in companies having to pass on higher production and supply chain costs to the consumer. Open banking can mitigate this effect by recommending payment options that have lower transaction fees and BNPL’s seamless options to ensure that sales flows remain resilient in the face of high inflation.
This greater flexibility could one day pave the way for multivariate pricing structures for businesses, where digital wallets can recommend a lower-fee payment option for users whose price is more attractive than higher-fee payment methods.
Periods of high inflation can be challenging for businesses and consumers alike, but fintech is helping to ease the burden at the point of sale with a range of flexible payment options and financial management insights that can promote more sustainable spending even as the cost of living increases.
As open banking continues to mature, we will see the challenges of inflation mitigated by more responsive technology that can stem rising costs through low-fee payment recommendations and automation tools to reduce overall operating costs.
Recent years have served as a reminder of the damaging impact of inflation, but with fintech and the rise of open banking, businesses and consumers will be better able to weather the storm in the future.
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