“It’s tough to make predictions, especially about the future,” is one of my favourite quotes from Yogi Berra.
For me, this has never been as true as it is now. With first Brexit and then Covid, the impact on economies, markets and households has been increasingly difficult to predict.
As we face another global crisis with a war in Ukraine, I am again concerned, mainly of course for the people of Ukraine.
I’m also concerned again about households around the globe that will feel the war indirectly through cost of living rises in part driven by the conflict. This time the economists are broadly in agreement that there will be huge impact.
The Resolution Foundation has said that rising oil and gas prices will hit UK households with a 4% drop in income, which is around £1,000 a year. The Centre for Economics and Business Research Consultancy estimates the impact will be £2,500 annually per household, the largest fall in UK income since 1955!
While the government will be providing support to the poorest households, as it has during Covid, responsibility to manage this situation lies with us all, and the focus of my posts is really on banking.
So, the question is, what can banks do given this gloomy backdrop?
Banks themselves are predicting the rise of interest rates to combat inflation. However, the Moneyfacts UK Mortgage Trends Treasury Report shows that there was a drop of 518 mortgage products available to borrowers at the start of March. This is the biggest drop since May 2020 when countries globally were locking down for the pandemic.
The obvious answer to my question is banks should help households save money. But the challenge is how? Some banks ad fintechs, like Snoop, offer switching services to help consumers get better deals on gas, electricity and other services like broadband and TV.
However, in the last year a number of utility companies have folded, and not only have options to switch been reduced, but I dare say consumer confidence in switching has reduced. Look After My Bills has temporarily paused its energy switching service as it says utility companies have been forced to remove tariffs because of the rising cost of energy supply.
Aside from switching, there is little else that banks and even fintechs are doing today to help solve this issue. And as my previous article highlighted, consumers are also underserved by budgeting tools to help them plan their finances. For example, none of the solutions I found make predictions based on inflation or even allow consumers to apply their own predicted rise in costs to see the impact.
Few if any households would have been “prepared” for the pandemic and hence had to react and adjust as events occurred. Maybe this is an area banks could help their customers with? They could help customers to understand what their critical spends (non-discretionary) are and how rises in these could impact the available (if any) cash a household has left to spend on discretionary things like eating out.
Recently I’ve had the pleasure of meeting a number of fintechs that have solely focused on helping households manage their money better. Companies like Financielle and The Humble Penny focus on financial wellness and better money management.
While banks have websites full of “content” that can been seen as helpful, providing better financial management is a service that banks seem to have forsaken to focus on selling products.
When I first started in banking in the late 80s, my bank had an actual budget account and staff to help you with planning your household finances. This was soon removed as the service was not making money, yet it is possible today to provide this valuable service profitably as fintechs have shown.
Another quote that is relevant is: “Don’t wait for a crisis to happen to create a crisis plan.” The pandemic served a great lesson on this, and I and many economists may be wrong, but it is always better to be prepared than to react in the moment.
I’m just saying that banks not only have a responsibility to safeguard our money, they should be proactive in helping us manage it better in the good times and the bad.
About the author
Dharmesh Mistry has been in banking for 30 years and has been at the forefront of banking technology and innovation. From the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He is CEO of AskHomey, which focuses on the experience for households, and an investor and mentor in proptech and fintech.
Read all his “I’m just saying” musings here.