Digital tools can protect consumers from inflation. Here’s how – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology



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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Eric Sager, COO, Plaid

  • Inflation rises in the United States after many years, making it more difficult for millions of Americans to purchase consumer items.
  • The expansion of fintech has made it easier for consumers to access banking services that can help them during times of high inflation.
  • Digital banking tools enable financial inclusion and empower consumers.

A visit to the grocery store confirms an economic phenomenon that concerns households across the United States and just about every investor in the world: Inflation is back after a long hiatus.

The latest data shows that consumer prices in July rose at the fastest rate in nearly 13 years, making it harder for millions of Americans to feed their families and manage a household. Inflation also hurts those who do not have a bank account or have limited access to financial services, as their cash savings lose value and they pay higher interest when looking for loans.

Hopefully, even if inflation doesn’t hit the double digits of the 1970s and 1980s, it should provide reassurance that our digital economy offers consumers products that previous generations did not have. After all, the expansion of fintech is making it easier for consumers to access banking services that can help during inflation, such as savings accounts, loan services, and investment tools.

Benefits of digital banking

For consumers earning less than $ 100,000 a year, fintech saves them $ 360 a year in interest and bank charges, according to a study by The Harris Poll. Online banking services like Dave, Chime, Varo, and Go2Bank help you by offering low-cost and sometimes no-charge products and quick access to wages to avoid potential overdraft fees. Many of these same digital banks provide secure credit cards that bear no interest, no annual fees, and require no credit checks to apply. This gives consumers another way to get credit, which can improve access to cheaper loans.

Other fintech companies give clients tools to manage their money when finances are tight. Products like Truebill and Copilot make it easier to track expenses and reduce bills by monitoring subscriptions and other payments. Fintechs are also helping people build better financial habits – apps like Acorns have helped find a way to save money by rounding up transactions and depositing that money into savings accounts. Meanwhile, Flex allows customers to split rent payments into smaller installments throughout the month, allowing them to manage their money between paychecks and avoid fees and charges.

The pandemic has increased awareness of these digital services as people opted for online banking and looked for new ways to make ends meet; research shows 59% of Americans are using more fintech apps to manage their money than before COVID-19.

Picture: Plaid.

The future of the banking sector

The influx of customers in turn forces the FinTech industry to continue to adapt, improve and grow. Consumer expectations are very high due to the new and improved options, accelerating the speed of innovation as businesses compete against each other to meet these demands. Traditional banks are joining and adding digital services, while integrated finance enables non-financial businesses to deliver financial services in new ways, when they need them.

It’s hard to overstate the importance of expanding the reach of a highly competitive banking industry. Even in arguably the most financially developed country on the planet, one in five Americans are unbanked or lack access to competitive banking services, making them vulnerable to excessive fees. In fact, consumers living on paycheck after paycheck paid big banks $ 17 billion in overdraft fees in 2019, according to a report by Oliver Wyman.

The problem came to the fore in the early days of COVID-19, when many minority-owned businesses with no established relationships with the big banks struggled to access government funding under the Consumer Protection Program. paychecks. Fintech companies have been successful in tackling this problem head-on because they adapt quickly and have no geographic boundaries. Minority entrepreneurs have been able to connect and tap into sources of capital that were once denied to them. Fintechs made more than 845,000 PPP loans last year, with a “substantially larger” share going to Afro-owned companies, according to a study by researchers at New York University. – Americans than traditional lenders. bank, blockchain

What is the Forum doing to improve the global banking system?

The World Economic Forum’s Fourth Industrial Revolution Network Center has built a global community of central banks, international organizations and blockchain experts to identify and harness innovations in distributed ledger (DLT) technologies that could help usher in a new era for the World Bank system.

We are now helping central banks create, pilot and scale innovative policy frameworks to guide DLT implementation, with a focus on central bank digital currencies (CBDCs). DLT has far-reaching implications for the financial and monetary systems of tomorrow, but decisions about its use require the contribution of several sectors in order to realize the full potential of the technology.

“Over the next four years, we should expect to see many central banks decide whether they will use blockchain and distributed ledger technologies to improve their processes and their economic well-being. Given the systemic importance of central bank processes and the relative freshness of blockchain technology, banks should carefully consider all known and unknown risks associated with implementation. “
—Ashley Lannquist, Blockchain and Digital Assets Platform, World Economic Forum

The Our Central Banks in the Age of Blockchain community is a platform initiative to shape the future of technological governance: Blockchain and digital assets.

Learn more about our impact and find out how you can join this one-of-a-kind initiative.

As fintech grows, this more connected and digital financial landscape will offer customers new experiences with minimal integration, lowering the barrier for developers and businesses to push new, highly personalized innovations to meet everyone’s changing needs. This digital transformation will also bring greater inclusion and lower costs for traditionally underserved people. From a provider’s perspective, it will become cheaper and less risky to serve a larger population.

Just as they did at the start of the PPP in 2020, fintechs, along with banks and businesses embracing integrated finance, need to adapt more and help the most vulnerable if faster inflation or other shocks occur. economic settlements. They can help reduce the number of unbanked people in the country, by empowering people in a way that softens the shock of consumer price increases, when they do their banking from their phones or even banks. library computers.

The next few years will undoubtedly see more radical transformations in our industry that we cannot yet envision, and it is no exaggeration to say that a fully digital financial system is possible over the next decade. This means that the financial world people want and need will finally be within reach.



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