Financial services, as an industry, has a bit of a ham in the pan problem.

While preparing Sunday dinner, your great-grandmother may have cut off the ends of the ham before placing it in the pan. Grandma too. And dad. And you too, of course. It turns out the pan was just smaller in past generations, and really, in 2022, there was no need to cut dinner to fit the space.

Financial services is a bit like that. For generations, the bank was what it was because of tradition, infrastructure and inherited processes. But there’s still a fair amount of untapped design space within financial services to solve customer problems.

LendingClub CEO Scott Sanborn and Cornerstone Fintech Research Director Alex Johnson told Karen PYMNTS’ Webster that forward-thinking companies have a huge opportunity to better serve their end users in the digital age, especially in the paycheck to paycheck economy.

As Sanborn told Webster, FinTechs start with a clean slate when developing new technologies, as opposed to a product-siloed mindset that has been a hallmark of banking. These advanced technologies can prompt consumers to review, for example, subscription services they may no longer use or can pre-select mortgage refinance and extend pre-approved offers.

“One click and you’re done,” Sanborn told Webster. “It’s the future of banking.”

To get there, Sanborn said, for providers, managing the experience is easy, but creating the data infrastructure and financial wellness campaigns is complicated to say the least.

Because they have less tech-type debt to manage, digital-only businesses might have a bit of a head start — for now. But forward thinking shouldn’t be the exclusive purview of FinTechs, Sanborn said. The data providers need to help consumers achieve better financial results, and their overall well-being, is available to all providers, including traditional banks.

The dating game

The changing financial services landscape may look a lot like the dating industry’s own transformation. At the start of the millennium, there were only a few online dating platforms, and now one can search for dating sites that focus on different religions, sexual identities, and hobbies.

Extend this model to financial services, and we see the emergence of banking for freelancers and startups. In the case of LendingClub, there are banking services to help heavy debt users manage that debt and reduce costs, Sanborn noted.

Banks will need to break down their silos, move beyond what Sanborn says is a mindset that focuses on increasing the number of consumers and the number of products and services each consumer buys.

As fintech companies and digital challengers look to these new opportunities, Johnson said, they need to spend more time designing products and how to bring complex operations together, while educating consumers.

Financial health

It’s no surprise that financial health is a priority. PYMNTS data shows that 62% of the population is still living paycheck to paycheck – down from previous readings, albeit slightly. And 17% are struggling to pay their bills, according to the latest statements.

These actions were taken before inflation hit 8%, before gas prices doubled at the pumps, and before rising interest rates began to reshape the credit card debt landscape.

Before the onset of the pandemic-induced recession, he noted, household balance sheets were in reasonable condition, overall – then they got really healthy, as interest rates were low and Government stimulus measures have boosted savings enough to offset many expenses, Sanborn noted. But now those stimulus payments have dried up and the forbearance programs have come to an end. Real wage growth is actually negative, taking inflation into account.

“All of this inevitably puts pressure on monthly spending,” he said.

So it’s no surprise that chargebacks tend to increase no matter where you look on the FICO spectrum.

The paycheck-to-paycheck designation hits low-income people especially hard. Seventy-nine percent of those who earn less than $50,000 a year live paycheck to paycheck. More than a third struggle to pay their bills. But even among affluent earners, at $100,000 and above, 47% live paycheck to paycheck – and 10% of them struggle to pay their bills. Almost every group struggles with an unexpected expense of $400.

No two cohorts of consumers with exactly the same financial problems are served by the exact same offers. Consider the fact that about 70% of millennials live paycheck to paycheck, up from 63% at the end of December. But the ranks of paycheck-to-paycheck seniors are also rising.

The pressures are markedly different: Millennials can earn more income over time. Seniors, on the other hand, live on a fixed income.

Against this backdrop, millennials’ propensity to buy now, pay later (BNPL) is increasing, Sanborn said, while avoiding credit cards. Seniors must protect themselves against rapidly escalating health care costs.

As Johnson told Webster, “Vendors will need to design solutions and tools specifically designed to help these generations address their ‘generational challenges’.”

Financial solutions, he said, must help consumers build resilience, giving them options to cover their short-term cash needs – and if they have to resort to credit, to ensure that options are both affordable and transparent, with no financial impact. trajectories in the negative direction.

Great apps on the horizon

The stage is increasingly set for the emergence of a super application. Data from PYMNTS shows that around 30% of consumers want such an app-driven ecosystem because it can help them manage their short- and long-term “in” money flows and “out” money flows. term.

Businesses want to enable a wide range of business activities, offer a wealth of lending options, and enable payments across it all. Consumers, on the other hand, want apps that help them improve their financial health. Payments can be a bridge to all of this, with a bit of aggregate data at your fingertips – after all, you can’t spend unless you know what you can spend.

Fortunately, we’re a long way from the early days of aggregators, Sanborn said, where early FinTechs connected bank accounts, investment accounts and savings accounts. Consumers could see all of their activity in one place, but nothing was truly actionable without a preview.

As Sanborn noted, insight is what gives the service provider (LendingClub, for example) the power to help consumers gain greater insight into discretionary versus non-discretionary spending, to see what consumers can buy monthly without going into over-indebtedness.

“Not in a way that stresses you out,” he said, “but in a way that makes your choices deliberate.”

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