UK cost-of-living crisis puts banks in spotlight to support recovery

Author: Mohit Joshi, President, Infosys.

Inflation has struck in the UK a 40-year high and more than 3 out of 4 adults in the UK are concerned about the rising cost of living

The UK faces major socio-economic hurdles this winter; Since the Covid-19 pandemic, the nation has seen rising interest rates, major supply chain disruptions and most recently a 40-year peak in inflation. Taken together, these factors have triggered an unprecedented cost-of-living crisis nearly 90% of UK adults feel the cost of living rising month-on-month and 3 in 4 adults in the UK are worried about the daily cost.

Negative economic impact of UK inflation

We are seeing stagnation in disposable income coupled with rising household debt – and this is particularly true for those on lower incomes. For vulnerable groups, 75% of their income is simply spent managing basic things like food, shelter and supplies. The lack of disposable income marks the biggest fall in living standards in the UK since the 1950s. The FCA estimates that a staggering 27.7 million people in the UK have low financial resilience. And this year Annual Minimum Income Standard The report cites that rising costs this winter will mean that many individuals and families will not be able to afford what is classed as the minimum amount for a decent living in the UK.

How UK banks can help weather this crisis

Banks play a crucial and essential role in ensuring financial well-being and helping the everyday consumer cope with the day-to-day pressures. While they may not resolve the crisis, they can help consumers face it as best they can, for example by encouraging individuals to plan and manage their personal finances with increasing care. Banks can help here.

1. Improve financial awareness

A financial health check is one of the first steps we, as consumers, are likely to take as we prepare for winter. With the help of technology, banks can help customers conduct a simple assessment of their financial health. From there, they can figure out how to organize their money and optimize their spending. To do this, banks can develop simple and effective tools such as Use consumer-centric dashboards to help customers make simple, informed financial decisions on a regular basis.

2. Create opportunities to save money

Consumers are expected to look for ways to save money where they can over the winter. Banks can help here by identifying cost-saving opportunities. Examples include providing green mortgages that improve building insulation efficiency and reducing energy costs, or using aggregation tools to help consumers compare the costs of different utility providers. Machine learning and AI technologies can be used to sift through transaction data and inform consumers about better deals or discount coupons in the market. And automating digital journeys can help banks offer simpler and more convenient experiences to encourage consumer savings. Apps and tools that help with financial planning, financial transparency and spend analysis, and encourage the setting and tracking of financial goals.

3. Empower groups to invest funds

When it comes to long-term savings, banks can help and empower consumers to invest in safe funds, whether it’s for college education or buying a home. In recent years, the range of asset classes available to investors has evolved significantly. Banks can differentiate their offerings by tailoring them digitally and in person, contextualizing them around their customers’ “life milestones” based on their unique circumstances. Digital tools can help consumers set personal schedules, prioritize those savings over their spending, and empower them on a longer-term investment journey for long-term financial security.

To this end, banks can work with FinTech companies to develop and offer products such as direct indexing, partial ownership of shares and set up thematic investment pots. Adding point solutions to encourage small daily investments in a home deposit can help encourage positive habits and protect consumers in the long run.

4. Enabling affordable lending to borrowers

To enable affordable lending, banks can partner with fintech companies to streamline lending processes by improving compliance, accelerating customer onboarding and simplifying loan disbursements to borrowers. In an inflationary and high-yield ecosystem, borrowers will experience more stress and anxiety, and it’s up to banks to move forward with empathy and improve access to funds. This is especially true for groups with little or no credit history who want to borrow money. Banks can use digital technologies to tap into non-traditional data sources to assess risks within these demographics and provide financial support accordingly.

5. Secure all money transfer channels

British agencies have reported more than £2.35bn in losses in 2021-22 and 43% increase in cybercrime and fraud since Covid-19. Banks play an essential role in protecting customer data, detecting and preventing fraudulent transactions and protecting customer privacy, especially in risky times like this crisis. The UK government has already announced £1,200 in financial stimulus to nearly eight million vulnerable households across the UK, but more may be needed (gov.uk). Banks must continue to invest in the latest cybersecurity technologies and train staff to mitigate the risk of cybercrime

Golden opportunity for UK banks to move forward with confidence

The UK banking industry has been working hard to support its customers and stakeholders during the Covid-19 crisis. Measures such as the timely and effective disbursement of government support programs through digital channels have boosted consumer confidence, which was eroded after the 2007 financial crisis. You must now continue the journey of collaboration and innovation to help consumers navigate this unprecedented cost of living crisis. And they need to see it as an opportunity with a broader purpose. This will enable them not only to achieve market leadership, but also to help shape the future for individuals and a resurgent Britain.

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