Recent years have helped to underline the damaging impact of inflation on the cost of living for consumers. Thanks to digital transformation initiatives and open banking, fintech can help shoppers bypass rising costs.
As US inflation reached 9.1% in 2022, its highest level since 1981, the burden on businesses were passed on to consumers at scale to drive everyday items higher in price.
Occurring simultaneously to the rise in inflation throughout the post-pandemic landscape has been the acceleration of digital transformation in fintech. This has helped to 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 innovations are deflationary due to their ability to save money for businesses through automation at lower operating costs. This combination of higher efficiency and lower costs can help to slow and even reverse the effects of inflation.
It’s for this reason that 78% of CFOs said they will increase or maintain enterprise digital investments through 2023 even in the face of soaring inflation rates, according to Gartner research.
For the world of fintech, payment innovation can help to not only keep operating costs lower for businesses but also provide a level of flexibility for consumers to actively make savings at the point-of-sale.
Payment Flexibility
Tailored payments preferences are helping more consumers to navigate an uncertain economic ecosystem with more choice than ever before.
The Buy Now Pay Later (BNPL) industry is growing at a rapid pace around the world. In the United Kingdom, a nation that saw inflation peak at 11.1% in October 2022 along with interest rate hikes to 5.25% in the months that followed, more adults than ever are using BNPL to counter challenges in the cost of living.
As of 2024, 50% of UK adults have used BNPL services at some point amounting to a total of around 26.4 million people. In comparison, just 36% had used BNPL at the beginning of 2023.
Because of the impact of interest on the cost of borrowing, consumers seeking to make a one-off purchase have sought refuge in BNPL services like Klarna and Clearpay that are generally interest-free for pre-determined periods of time.
Theoretically, the rise of BNPL has meant that consumers can make essential purchases in a cost of living crisis, and spread payments out into the future when spending constraints are less challenging.
However, this process runs the risk of opening the door to more debt for struggling consumers. As the United Kingdom ended 2023 in a recession, data showed that fearful consumers begun rejecting BNPL options as 19% of shoppers opted to pay in full to better manage their finances.
This suggests that true flexibility can’t be achieved in economically challenging environments without the freedom of data-driven payment options and insights to support stronger financial management.
The Open Banking Revolution
According to Harris Poll data, consumers making less than $100,000 annually save $360 a year in interest and bank fees with the help of fintech platforms.
Online banking services like Chime, Dave, Varo, and Go2Bank have helped to pioneer low-fee and no-fee products and early access to wages to prevent unnessecary overfraft charges and can even provide highly competitive interest-free credit cards.
Crucially, fintech platforms are becoming more sophisticated when it comes to financial management. Tools like Copilot and Truebill have helped consumers to lower their bills and track expenses by analyzing monthly outgoings and providing data-driven advice.
These transformative tools can help consumers to mitigate the impact of inflation by making intelligent decisions about how to cut expenses, when to make a purchase, and the best method to execute a payment.
This is all part of the open banking revolution. While traditional banking works by building a direct relationship between banks and consumers, open banking unites our many financial platforms and data in one place to provide a holistic overview of our finances.
With the help of open banking tools, consumers can access a variety of financial products and services provided by third-parties. As a result, individuals can gain better control over their finances while discovering tailored solutions to meet their specific economic needs.
Not only can open banking streamline transactions, but it can also integrate with digital wallets to make recommendations over the best way to make a specific payment. In the future, we could see these tailored recommendations become flexible enough to instantly analyze fees, conversion rates, and other metadata to recommend cryptocurrency or CBDC (central bank digital currency) payments should they be more beneficial at the point-of-sale.
Passing Savings on to Businesses
One of the biggest causes of inflation can be found in businesses having to pass higher production and supply chain costs on to the consumer. Open banking can mitigate this effect by recommending payment options that feature lower transaction fees and seamless BNPL options to ensure that sales funnels remain resilient in the face of a high inflation environment.
This greater flexibility may one day pave the way for multivariate pricing structures for businesses, where digital wallets can recommend a lower-fee payment option for customers that’s priced more attractively than higher-fee payment methods.
Countering Inflation
Periods of high inflation can be a challenge for businesses and consumers alike, but fintech helps to ease the burden at the point-of-sale with a series 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 adaptive technology that can stem rising costs through low-fee payment recommendations and automation tools to bring overall operating costs lower.
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 more capable of weathering the storm in the future.
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