By Philip Belamant, Founder and CEO of Zilch
Since the global financial crisis of 2008, our relationships with money, banks, credit lenders and financial institutions have been increasingly under scrutiny. Traditional financial institutions have been criticised for irresponsible lending and excessive risk-taking, which has too often failed, with the tab being picked up by governments and tax-payers. Now, 13 years later, we find ourselves amidst a pandemic with UK redundancies at a record high and the unemployment rate increasing to 4.9%. The difference this time round is consumers, especially younger generations, are cynical of mistakes made in the past and rightly demand transparency and responsibility when it comes to borrowing and lending.
Although previous generations may have had a more detached view of their finances, most Gen Z savers, who check their bank balance at least once a day via mobile apps, are fueling a demand for transparency that comes with no-fuss digital banking and straightforward terms and conditions. They want to know they can trust their financial provider to be absolutely clear on how much they are spending and saving and not be blindsided into falling into debt. And so, traditional and new innovative lenders must look to create responsible solutions for consumers to borrow that meets new demand.
Below, I will explore why it’s time for a shopping revolution and exactly how this can be achieved responsibly thanks to the use of new technology, open banking and quite frankly, a whole new approach to lending.
It’s time to put the customer first
BNPL pretty much does what it says on the tin – it offers the consumer the ability to buy an item and spread the cost overtime rather than paying the full amount at the time of purchasing. While this offers consumers a more convenient and perceived flexible way of purchasing items, the BNPL market does not actually place the customer first and is instead more focused on the merchants themselves.
Traditionally these providers rely on retailers to distribute their offering, which means they are competing against each other for merchant partnerships. As a consequence, when a customer comes to pay they have multiple providers to choose from. Aside from being a busy and fragmented process, this can also result in shoppers flicking between payment sources and quickly find themselves balancing multiple payment timelines from different BNPL providers, who don’t talk to one another. This can make the process of keeping track of one’s finances hard for the end user, putting them in a position where they could potentially risk missing a payment or accumulating debt without truly realising.
Streamlining payments and simplifying the lives of users should be top priority for operating in the finance space – it’s time to flip the model on its head and place the customer first, only when this is done will customers get the full benefits that the financial service industry can offer as well as reduce the possibility of over indebtedness. For example, at Zilch, this is the fundamental difference that separates our business model from BNPL players – we utilise an over-the-top platform, making our service merchant agnostic – this means we focus solely on the customer which in turn brings value to the retailer (not the other way around).
This approach gives customers freedom to shop wherever they like without the stress of dealing with a convoluted mixture of providers, lacking in uniformity (think multiple in-store credit cards VS. an overarching provider catering for all in one unified place, such as AmEx), which can compromise their purchasing decision making process. By simplifying the checkout process through a single and universal option, consumers benefit from a straightforward payment timeline that is easy to understand and manage, reducing exaggerated lending and spending.
The ‘new world’ of credit is one with responsibility at it’s very core. Customers will never be undermined or tricked by nasty hidden fees and high interest rates and services and payment timelines will be more streamlined than ever before.
Transparency through technology is key
Without a holistic view of the money committed toBNPL providers, consumers may feel they are in a position to keep spending, only realising too late that they have spent more than they have when multiple repayments come out of their accounts. One way to achieve transparency is by providing a consolidated view of all spending by ensuring that the customers can spend anywhere, furthermore alerting users when payments are due ahead of time to better help them plan their weekly and monthly cash flow. This is an essential step that needs to be taken for this industry to become more responsible. Transparent, personalised lending is not only important for encouraging better financial wellness but the convenience will in turn foster a positive user/provider relationship. At Zilch, we let the customer have greater say in how they make repayments – they can make a payment early, snooze a payment or follow the automatic schedule, so they can borrow responsibly while always maintaining a clear and controllable overview of their finances.
Gen Z’s digital approach to banking is a massive behavioural change compared to other generations, that’s a direct result of their interaction with technology. They’re more likely to use no-fuss banking apps that allow them to move their money around between their accounts and know exactly how much they are spending and saving. This demand for transparency means businesses have little choice but to adapt to cater for this demand if they want to remain attractive to this group of customers. Fine print and unclear terms and conditions are no longer acceptable, with consumers more wary, and rightly so, about borrowing responsibly and not being blindsided into any payments or fees they cannot afford to pay back.
That’s why we take affordability very seriously at Zilch. Since day one, we knew our business had to be born with regulation in mind. We’ve had responsibility in our DNA from the start and we’ve worked closely with the FCA for the past 12 months. We are proud to be named the first ever fully FCA regulated pay over time provider in the UK.
Open Banking has become a core part of financial services globally, yet many BNPL providers have been slow out of the blocks when it comes to adopting this technology. So much so, Zilch is currently the only player to take advantage of Open Banking Technology combined with soft credit checks. This enables a real-time view and understanding of a customer’s affordability, which means never lending a customer more than they can afford to pay back and it removes the possibility of indebtedness and credit related anxiety. Our view is: if a customer misses a payment, it’s largely a failure on behalf of the BNPL provider, not the customer.
It’s abundantly clear to me that consumers are ready for a dramatic change when it comes to credit and lending. The general demand for transparency, efficiency and responsibility, ultimately fueled by Gen Z, must infiltrate into financial services, who will struggle to survive if they prove they can’t keep up.