Fintech is having an enormous impact on the financial affairs of some of the most vulnerable in society – both positively and negatively. In the US, for example, there is a a growing cohort of fintechs focusing on vulnerability (building emergency savings accounts, delivering financial coaching, managing money, and more). However, notes Sarah Austrin-Willis, senior director at US-based non-profit Financial Health Network, “we’ve also observed that the increased adoption of fintech apps in society generally has not necessarily narrowed the digital divide, with those who lack access to technology falling further behind”.

The growth of online-only customer channels and apps can exclude some in society. And fast, ‘frictionless’ transactions, sometimes coupled with digital ‘nudges’ using gamification techniques (incorporation of game-style elements into non-game activities), can lead to overspending (in the case of ‘buy-now-pay-later’ (BNPL) fintechs), overborrowing (digital lenders) or overtrading (investment platforms). The scale of these opportunities and threats are attracting the attention of regulators, charities, incumbent financial institutions, as well as fintech challengers.

Examples from around the world illustrate the double-edged sword of fintech for vulnerable customers.

The good

• In the UK, PwC’s Intelligent Conversation Analytics analyses customer conversations in real time and can pick up signs of vulnerability from keywords or tone of voice. For example, a lender might use it to identify an emotionally stressed applicant (perhaps because of an urgent cash requirement or over-indebtedness), interrupt an automated loan application process, and trigger an action more suited to that customer’s needs, such as steering them towards debt counselling.
• In Kenya, the rapid expansion of ‘mobile money’ accounts – which allow users to store, send, and receive money using only their mobile phones (without a formal bank account) – has seen the vast majority of those previously excluded from the financial system, often the poorest in society, included. The 2019 FinAccess household survey shows that 83% of Kenyans are using at least one financial product (the report’s definition of financial inclusion), up from just 27% in 2006.

• Comentis is a UK-based software provider that helps financial organisations identify clients in vulnerable circumstances. Jonathan Barrett, CEO and co-founder, explains that his platform uses psychometric questions to get an understanding of a customer’s state of mind and wellbeing. By doing this, it gives financial advisers a “clinical edge” that they might otherwise have lacked. “Advisers are obviously experienced in recognising the signs of vulnerability, but they aren’t clinicians, and sometimes indicators are more subtle and challenging to detect.”
• Prinsix is another UK-based customer-onboarding software platform available to lenders and provides insights into signs of vulnerability. For example, if a customer is presented with a ‘slider’ on a website or app to choose the size of loan required and slides to the maximum available without hesitation, the software will pick this up and flag it as a potential sign of vulnerability (the customer might be in financial distress and desperate to find as much credit as possible). The lending institution would be prompted to initiate an alternative onboarding route or perhaps a manual intervention such as calling the customer to discuss the loan required.
• In the US, Nova Credit provides a credit scoring solution that facilitates immigrants’ access to financial services and credit without having a US-based credit history. It links to overseas credit reference agencies and then brings consumers to lending products that can be accessed using these sources. Nova Credit aims to provide a bridge between ‘siloed’ foreign credit data and US institutions so that they can serve people who have recently moved to the US – it ‘translates’ a foreign credit history to US standards, according to its website.

And the not-so-good

• Kenya’s ‘digital loans’ market is largely made up of unregulated loans accessed via mobile phone apps. The March 2021 Kenya consumer protection in digital finance survey of almost 800 digital financial services users, produced by IPA and the Competition Authority of Kenya, shows that 54% of respondents have accessed such loans (27% within the past 90 days). Many borrowers, 72% of whom come from households without a member in formal employment, are exhibiting "concerning signs of stress". More than half report having reduced food and non-food expenditure at some point to repay a mobile loan, around 45% have not repaid another debt so that the mobile loan could be serviced, and around 35% have taken out a second loan to repay the first.

• On a global level, many apps do not work well on older mobile devices, which are the primary method of online access for many financially vulnerable people. Others may unintentionally exclude some consumers, such as those with a visual disability, due to design limitations. Even apps designed with these considerations in mind may never reach scale if they rely on people in vulnerable circumstances to find them.

• To achieve rapid growth, fintechs’ customer acquisition, onboarding and transaction processing need to be fast and almost exclusively digital with very few human interventions. But this is not always consistent with appropriate care for customers in vulnerable circumstances. Jonathan Turner, technology strategy and innovation lead at UK not-for-profit Fair4All Finance, which aims to support the financial wellbeing of people in vulnerable circumstances, says when it comes to lending: “A little bit of friction is a good thing. When people do make instant decisions, these are often not the best decisions. One of the best examples of this is the buy-now-pay-later market.

The focus on ensuring fintech is playing a sufficient role in consumer protection looks likely to grow in all markets

• Research published in September 2021 by the independent UK organisation Citizens Advice highlights the severity of the consequences of rapid, automated onboarding for loans and credit, particularly among the young. It finds that over 50% of 25–34-year-olds struggled to meet a BNPL repayment in the past year; and that one in ten BNPL users had been chased by debt collectors for missing payments, rising to one in eight young people, according to a press release. It also finds that of those who were referred to a debt collector, 96% experienced at least one of the following: sleepless nights; ignoring texts, emails and letters in case they were about debts; avoiding answering the door; borrowing money to repay the debt; or their mental health getting worse.

Addressing fintech’s potential harm to those in vulnerable circumstances – which often goes hand in hand with rapid scaling – is likely to be a common theme in many countries in the future. With that said, fintech’s role in helping those in vulnerable circumstances will vary a little more by country. The prioritisation of financial inclusion will more than likely persist in countries with less developed financial systems and in developed markets with large, underserved communities. At the same time, the focus on ensuring fintech is playing a sufficient role in consumer protection looks likely to grow in all markets. It is certain, however, that developing products and services to meet the needs of those in vulnerable circumstances is becoming a much more prominent area within the world of fintech.