Why A Fintechs Lending Response Could Be The Solution To The Cost-Of-Living Crisis

The cost-of-living crisis has dominated headlines since it first unfolded in 2023 and now, in a bid to find a solution, experts are turning to the evolving realm of financial technology and lending. Renowned for its agility and innovation, could fintech lending present a potential answer as prices of essential goods and services continue to surge? Here, we explore fintech lending in more detail and reveal whether it could be used to reduce the associated challenges and financial turbulence of the cost-of-living crisis.


The Cost-Of-Living Crisis

In 2023, we first came across the phrase ‘cost-of-living’, which hasn’t left our news since. In short, it describes a financial strain that households feel due to the price of essential goods and services growing at a higher pace than the typical rate of disposable income. But more than just an annoyance, this crisis has resulted in a huge reduction in consumer spending, ultimately affecting businesses, individuals and our country.

Indeed, many small and medium-sized businesses are struggling with falling sales and higher rent and operational costs. That’s before we mention the consumers who are struggling to live day to day.

While once hailed as an innovative approach to traditional banking, fintech lenders now find themselves in a tricky position. Consumers have less money to spend, and traditional lenders are typically unwilling to lend. There is an answer though, and it requires complete innovation in the fintech sector.

Certain fintech organisations could present a solution with specific financial products designed for cash-strapped individuals and built around more compassionate lending policies. In doing so, fintech lenders can help people not only weather the current storm but also take a proactive approach to building customer relationships for the future.

Fintech Lending And A Recession

It’s known that during times of financial difficulties, banks typically change and tighten their lending criteria. This is where alternative financing options come into play including fintech lenders. These providers offer a way out for small and medium businesses thanks to analytics and algorithms which allow them to provide innovative financial solutions to help keep companies in business.

But that’s not to say it doesn’t come without its challenges – especially when difficult economic times often increase the risks associated with loans and debt. Though it’s essential to be aware of these risks, fintech lenders are at the forefront of an exciting opportunity – one that could not only prove to be an essential lifeline for many but one that will help fintech organisations to position themselves in the market firmly.

In addition to this, fintechs that provide user-friendly, accessible and responsive lending products and services can build better relationships with any businesses that may have struggled with traditional types of lending. Fintech lenders should embrace innovation, continue to diversify their offerings (including those that transcend traditional risk assessment models) and explore partnerships with businesses and banks to better serve the people around them.

Future Trends And How The Landscape Can Be Navigated

One thing that fintechs can do is to prepare for the future – as economic hard times are likely to return, albeit for different reasons. What’s more, current and future trends can help organisations to innovate and transform, which could prove essential looking ahead. One such approach is to look at embedded financial integration, where fintech services are integrated with everyday experiences. This leads to financial services in non-financial platforms and allows users to access loans, savings and other financial tools more easily as part of their day-to-day routines.

Another approach is to look at enhanced personalisation of financial products with AI. Artificial Intelligence can help fintechs to offer even more personal and bespoke financial experiences by allowing these companies to understand their users’ preferences, risk profiles and financial goals. It can then adapt its products to suit.

In addition, decentralised finance is increasingly becoming popular with fintechs and is poised to transform the way banks are structured. Fintech organisations that tap into this realm and adopt decentralised principles could create more transparency and security within transactions. Not only will this benefit both banks and individuals but also open doors for financial services on a global scale. By delving into these three trends, fintechs could offer even more solutions when additional challenges arise in the future.

A Final Word

It’s important to note that despite the above opportunities, fintechs still have to deal with huge challenges. This is where a multifaceted and proactive approach comes in. After all, in difficult times, there is typically a reduction in the demand for lending, issues raising capital, higher competition, online concerns and regulatory issues. But with the right strategy behind it and a commitment to incredible customer service, fintech organisations can survive and thrive during these challenging times.

Chirag Shah, founder and CEO of Nucleus Commercial Finance and has over 20 years of experience in the financial services industry and a deep understanding of the needs of UK SMEs.

In 2011, he founded Nucleus, a leading alternative finance provider, to offer flexible and tailored solutions for SMEs across various sectors and stages of growth. With an understanding of the challenges that UK SMEs face in the current economic climate, Chirag launched Pulse in October 2022, a free-to-use service that helps businesses and accountants gain insights into financial performance with AI-powered data visualisation and personalised dashboards. Chirag is not only committed to driving growth and innovation in the UK business ecosystem, but he’s also helping SMEs better understand their data to boost their profitability and guide them towards success.