Following the pandemic, numerous geopolitical events, and resulting inflation, the cost-of-living crisis has impacted millions of people’s financial situations around the world.
In May, the Governor of the Bank of England Andrew Bailey said that the UK economy had turned a corner, while in Europe and the USA consumers reported feeling slightly more optimistic than they did in the previous quarter.
But there’s no doubt that many are still reeling under its lasting impact. In fact, a recent survey from Compare the Market found that almost half of people in the UK are using their savings to cover everyday expenses.
To delve deeper into how consumers not just in the UK but around the world view the current economic backdrop, and to gauge an understanding of how they’re addressing the issues associated with it, we surveyed 7,000 nationally representative adults across Italy, Germany, France, the UK, Austria, and the USA. And from the results, which feature in our latest Banking on Banks report, it’s clear to us that for many the cost-of-living crisis isn’t over.
More than a fifth (22%) of people worldwide think their financial situation will worsen in the next 12 months, while seven in ten Europeans (71%) hold at least one concern about their finances in the next 12 months, and one in five (21%) Americans are worried about paying bills.
These concerns are undoubtedly altering the way in which people approach their finances. Ultimately, it means that the need for affordable, tailored financial products and services which can help them manage their financial concerns is high.
When looking at insurance, for instance, most Europeans (68%) and Americans (72%) told us they think premiums are excessively high, highlighting the importance for many to access affordable and accessible products.
But our research shows that, predominantly, consumers are putting their trust in credit-focused services to help shake off the lasting impact of the crisis. Three in ten (30%) consumers worldwide took up credit cards over the last 12 months, rising to 47% for Italy alone, and 42% for consumers in the US alone.
Yet despite this reliance, in Europe and in the USA, many are being turned away from accessing credit-based financial products and services. In fact, one in five (18%) consumers worldwide have been turned down by a financial provider for borrowing or credit services at some point in their lives, with this much higher in the US, with almost three in ten (27%) being turned down.
The accessibility of affordable financial services is one of today’s great challenges for financial providers. Particularly given that consumers are increasingly looking towards banks and lenders as accountable for preventing levels of personal debt.
Specifically, our research shows that across the UK population, one in two (50%) say that banks and lenders have a responsibility for ensuring their customers don’t fall into unmanageable levels of debt. And this was echoed even across the generations, with 45% of 25-34 year olds, 47% of 35-44 year olds, and 52% of over 55s globally putting the onus on financial providers.
The difficulty lies with the fact that when it comes to issuing credit, today some banks and financial institutions still rely heavily on credit scores to assess creditworthiness. But for millions of people with no or limited credit history it is more difficult to access loans, credit cards, or other financial products.
This proves particularly detrimental for the so-called millions of ‘credit invisibles’, which refers to individuals who have a poor credit score, or none at all. This is usually because there's not enough information available about their financial track record to paint a detailed picture of their finances for a financial provider to permit them a credit-based product or service. In the UK for instance, an estimated one in ten Brits are ‘credit invisible’, which equates to around 5.6 million people.
For banks, lenders, and insurers, providing the highest standards to customers is only possible if they have a full picture of not just their finances, but wants, expectations and needs.
Luckily, technology like open banking presents a transformative opportunity for all financial providers to meet consumers’ expectations, pursuing financial inclusion in the process. Open banking provides a more comprehensive and accurate picture of an individual's financial behaviour as well as leveraging a broader set of data points to better assess creditworthiness.
In the insurance industry for instance, by providing access to customer financial information, open banking unlocks more data for insurers. Insurers can then use this data to better assess risk, optimise pricing and provide more competitive policy premiums to their customers.
And for banks and lenders, it helps them support consumers still grappling with the lasting impacts of the cost-of-living crisis, enabling them to offer them the most suitable financial products and services.
This could potentially help a wider amount of people – even those credit invisibles previously excluded - to access credit. In the face of future economic challenges, such innovations will be pivotal in supporting consumers with financial pressures, strengthening the overall financial ecosystem in the process.
