Weathering the storm: how savings providers can utilise tech to support their customers through the cost of living crisis

In an increasingly uncertain world, savers are looking for support to navigate the uncertainty of rising inflation and an impending recession, whilst continuing to work towards longer-term life goals such as purchasing a home or saving for retirement.

What transformational changes are needed to keep up with customer needs and expectations?

It is more important than ever that savings providers understand the factors influencing the needs and expectations of customers, and the role tech can play in enhancing the customer experience.

A year of uncertainty – with more to come

Its been another tumultuous year for the economy, with a cost of living crisis fuelled by the war in Ukraine driving fuel and energy prices upwards and sending inflation soaring.

The Bank of England recently announced an increase in the base rate from 2.25% to 3%, and further increases in interest rates are expected, with the industry predicting that it could hit 5.5% by the middle of next year.

This means an uncertain future for mortgage holders as well as first time buyers, adding fuel to an intensifying UK housing crisis driven by the continued desire to work from home and the resulting exodus from cities and smaller properties. The knock-on effects of an uncertain financial market were felt recently when hundreds of mortgage products were withdrawn overnight as lenders struggled to price them given the volatility in swap rates.

Seismic changes in the employment market have led to high employment rates and widespread unfilled vacancies. While some of those who left their jobs as part of the Great Resignation are now returning to their employer, the “quiet quitting” trend suggests that their priorities have changed, with a positive work-life balance now a top factor in job satisfaction and search.

For older, more senior employees, many are leaving the labour market for good, citing long-term illness or care responsibilities. However, there are also high levels of over 65’s re-entering the workforce following retirement, due to the pressures of the increased cost of living.

2023: a savings crisis?

For savers, increased interest rates should mean good news. However, in the context of the cost of living crisis, it’s likely that average earners will take a hit to their savings pots over the next 12 months, according to a recent study by the investment firm Hargreaves Lansdown, only the richest 10% of households are expected to add to their savings.

Those without emergency funds could be forced to turn to credit to make ends meet – stores like Iceland and B&M Bargains are now following American stores, offering buy now, pay later (BNPL) payment options on groceries and highlighting just how precarious the situation is for those whose earnings no longer cover the essentials.

While the savings market is likely to be tough, there are some clear behavioural trends which offer clues about the long-term effects, and how savings providers should respond:

1. Putting savings on auto-pilot

It’s likely that the cost of living crisis will drive many out of the habit of contributing to their savings. There’s also potential for the wider societal shift towards subscription-based services – for everything from software and music to cars – could mean that consumers no longer see the value in “saving up” for important purchases.

While this could make it harder for consumers to develop good savings habits, the same philosophy of subscription and automation could offer a solution. Innovative options like “micro-savings” accounts, utilising technology such as Sweeping and Variable Recurring Payments (VRP), are likely to increase in popularity, allowing consumers to set automated rules for when funds are shifted to their savings accounts, for example when accounts hit a predefined balance.

The way that savers will manage their savings is also likely to shift, with more relying on management tools based on Open Banking technology to track their funds across different products and platforms.

2. ESG at the heart of brands

This summer’s heatwave is just one of an increasing number of visible signs of the changes in our climate. With previously once-in-a-century environmental disasters becoming ever more commonplace, the importance of a brand’s commitment to the environment is on the rise.

While historically economic upset has forced environmental issues onto the back burner, first-hand experience of the effects of climate change, like droughts or flooding, are likely to keep sustainability front of mind.

Customers will increasingly consider a brand’s environmental and sustainability credentials in their choice of savings product. They will also prioritise products which support them to understand their own environmental impact and achieve goals such as tracking or offsetting carbon. Products and brands able to demonstrate a positive impact on our climate are likely to become ever more popular.

3. Continued digital acceleration

While the COVID-19 pandemic is no longer headline news, the impact it has had on digital adoption shows no signs of slowing down. Savers will continue to have high expectations of brands digitally, demanding a level of responsiveness, accessibility and speed that’s comparable to the service they receive from household names like Amazon and Netflix.

Embedded finance will play a significant role in offering the seamless experience customers expect, with easy payment options and effortless integration of their preferred services. Amazon’s contactless shopping, where customers simply pick up their desired products and walk out of the store, demonstrates the potential to move finances to the background, allowing an uninterrupted customer experience.

Cryptocurrency should also be on the radar, with more than half of millennials and Gen Z investing in crypto as part of their retirement strategy. While crypto and web3 are still nascent technologies, it’s vital that savings providers have a plan of action and are able to respond quickly if, for example, a Central Bank Digital currency were launched.

How savings providers can help

Savings providers can play an important role in supporting people through the cost of living crisis and beyond.

Education will be key, with savers looking for advice and support to help them manage their money as effectively as possible. Whether that’s understanding how to manage investments and assess risk levels during a recession, or figuring out how to maximise their deposit to reduce their mortgage rate, savings providers have an important role to play in supporting their customers to make sound financial decisions.

Encouraging the adoption of technology is an important way that savings providers can help customers get more from their money. VRP and sweeping technologies can help to ensure that funds are not left to sit in low-interest current accounts when they could be earning interest elsewhere, for example, reducing the mental load of money management for customers in the process. As highlighted in the research conducted by Hargreaves Lansdown, this is an area with great potential as there is a total of £267.8bn currently languishing in accounts paying no interest at all.

Open Banking solutions will also support customers by providing a birds-eye view of finances, giving people the tools and insights they need to save better.

Weathering the savings crisis

The continuing cost of living crisis is likely to translate into a longer-term savings crisis, as consumers are forced to dip into savings or turn to credit to make ends meet. While there are numerous challenges to respond to, the accelerated adoption of technology sparked by the pandemic could offer tools to help both savers and savings providers weather the storm.

At Newcastle Strategic Solutions, we work with savings providers to put in place the transformational changes they need to keep up with customer needs and expectations. To find out how we can work together on the path to digitalisation, visit our website.