This can’t be right
We are in the midst of a cost-of-living crisis. I trust everyone has noticed, even if it doesn’t affect us all equally, yes?
The only way to support people who need money is to give them fair, affordable and speedy access to it
I feel I have to check… especially after a bank CEO told me, conspiratorially, that he was shocked to discover that not all his staff had home offices and space enough for the whole family to comfortably work and study from home when the first Covid lockdown started.
So I am starting with the basics here.
We are in the midst of a global cost-of-living crisis combined with an energy crisis.
This translates to people struggling to put food on the table or keep the heating on.
That means that people need loans more than ever.
But the relentless mathematics of banking means that a cost-of-living crisis inevitably comes hand in hand with an eligibility crisis.
The people who need the money the most are never the folks banks are designed to lend to.
Risk, innit.
It’s the way of the world. If only you needed that loan less, we could give it to you, Jonny.
Only the loans that are getting rejected are not for a holiday or a newer car. They are often to live.
So what do people do… when they are struggling to feed their children… and get turned down for a loan?
This is not a rhetorical question, friends.
What do they do?
If they are lucky, they find their way to a credit union.
If they are not lucky, they turn to a loan shark.
This is bad, to state the obvious.
It is bad for them, obviously.
But it is also bad for you…
It is bad for you as a lender because these segments can be profitable to lend to if you get your cost to serve right (you know what’s coming now… switch off your mainframes already).
And it is bad for you as a society because loan sharks push people deeper and longer into debt.
Debt causes anxiety, mental health problems and physical health problems that you as a society will end up paying for in services, damaged social fabric and productivity losses.
So if you don’t care about your fellow people, care about the cost poverty comes with.
‘This can’t be right’ is a refrain I get a lot when I speak about this to friends in the UK.
You can see how they may think that.
Post-Covid, the overall statistics show a picture of stable employment and an increase of available discretionary spend for the higher income brackets.
But.
But but.
If you look at the other end of the earnings pile, the cost-of-living crisis has pushed those who were just scraping by into the ‘negative disposable income’ bracket. That is 12 million consumers in the UK right now.
What do these people do?
Some have safety nets… friends or family who will lend them some money.
Some dig into savings (if they have them) in the hope that one day they will build a buffer again. It’s for a rainy day after all… and it’s pouring.
And the rest?
Yes, I know you read it above.
The lucky ones are supported by the credit union movement. The unlucky ones fall into the clutches of loan sharks.
OK. Now you know.
So, what are you doing about it?
The only way to support people who need money is to give them fair, affordable and speedy access to it so they get back on their feet.
Default rates among the poorest are no worse than any other segment of society.
Access is.
How can you fix that?
Fix your cost to serve.
Lower your operational costs by slimming down and modernising your tech estate.
I am not even asking you to squeeze your margin here.
Keep making money.
By all means, keep making money.
But spend less money on ancient tech in the process of making money… spend less money and stop expecting your customers to pay for that delta.
Protect your margin and help your client by cleaning up your tech estate.
Your risk team will love you.
Your clients will love you.
And you will have helped make the economy a little more resilient… which is good for society and good for you, so you can keep making money.
A rising tide lifts all ships and all that.
#LedaWrites
Leda Glyptis is FinTech Futures’ resident thought provocateur – she leads, writes on, lives and breathes transformation and digital disruption.
She is a recovering banker, lapsed academic and long-term resident of the banking ecosystem.
Leda is also a published author – her first book, Bankers Like Us: Dispatches from an Industry in Transition, is available to order here.
All opinions are her own. You can’t have them – but you are welcome to debate and comment!
Follow Leda on Twitter @LedaGlyptis and LinkedIn.
