Are you confident enough to make financial decisions? Research by Freetrade, a financial technology company, reveals that while 52% of adults in the United Kingdom (UK) have basic financial education, 48% still lack essential skills, emphasising the urgency of financial literacy efforts.
The increasing complexity of the financial world has left many consumers feeling confused and uninformed. In response, FinTech, short for financial technology, is stepping up to improve financial literacy and empower individuals to manage their finances effectively, as noted by Financial IT.
From net worth tracker apps that promote self-learning to credit monitoring services that foster healthy financial habits, these personal finance solutions are revolutionising how individuals manage their money and build financial confidence.
Fintech is reshaping how people manage money. Interestingly, this article dives into how fintech redefines financial literacy in the UK by highlighting innovative solutions that improve individuals’ financial knowledge.
What is Financial Literacy?
Investopedia defines financial literacy as the understanding and application of financial skills, including personal finance management, budgeting, and investing. It lays a solid foundation for developing a healthy relationship with money, paving the way for a lifelong journey of learning the financial aspects of life.
Beyond the financial skills and knowledge gained, why is financial literacy important?
The European Commission identified that the role of financial literacy is to help individuals secure their financial future through informed planning, decision-making, and investment. It also protects them from risks like over-indebtedness, excessive risk-taking and fraud.
Moreover, it can help individuals answer financial matters such as which loan to choose, where to invest money, and how to save for a dream home –making it a crucial aspect of managing finances.
FinTech Enhancing Financial Literacy
Financial knowledge and skills are applied to fintech solutions to maximise the benefits of these technologies, manage finances more efficiently, and mitigate risks such as poor financial planning.
However, for fintech to truly benefit users, Forbes argues that both media literacy, the ability to critically analyze media messages, and technological literacy, which involves safe and responsible technology use, are essential. Without these, the risk of impulsive purchases and poor investments increase, potentially damaging financial health.
5 Ways FinTech is Changing the UK Landscape
FinTech is reshaping how individuals and businesses in the UK manage money. From payment systems to personalised finance management, here are five key ways it is driving change.
1. Transforming the Payment System with Digital Wallets
Digital wallets, also known as electronic wallets, are software applications that securely store payment details and login credentials for various payment methods and websites.
Digital wallets enable payments directly from a device, eliminating the need to carry physical cards. By securely storing credit card, debit card, or bank account information, digital wallets allow users to complete transactions seamlessly.
The Shift Towards Digital Wallets in the UK
The Call for Information (CFI) reveals that digital wallets are becoming more prominent in retail payments across the UK, accounting for approximately 14% of point-of-sale transactions and 38% of e-commerce transactions by value in 2023. This trend highlights the shift towards cashless payments and the convenience of using electronic wallets.
Digital Wallets for Improved Financial Transparency
Beyond convenience, digital wallets provide notable advantages for enhancing financial literacy, specifically through increased transparency. As noted by Finextra, these wallets offer detailed insights into spending habits and transaction history, allowing users to take control of their finances and make more informed financial choices.
2. Leveraging SaaS Solutions for Personal Finance Management
According to the software company Panintelligence, FinTech SaaS (Financial Technology Software as a Service) encompasses cloud-based solutions that optimise and simplify financial services.
Delivered through the internet, these platforms enable financial institutions to harness advanced technology without relying on extensive on-premises infrastructure.
Moreover, fintech SaaS includes diverse applications such as payment processing, lending platforms, and high-net-worth asset management tools. These cloud-based services enable financial institutions to enhance efficiency, strengthen security, and improve the user experience.
The Growth of SaaS Fintech in the UK
Beauhurst, an information services provider, highlights that the software-as-a-service (SaaS) market is experiencing rapid global expansion, making it a highly appealing sector for entrepreneurs and investors. SaaS businesses account for nearly 9% of high-growth companies in the UK, with a significant presence in industries like FinTech. This highlights why more companies adopt cloud-based technologies that enhance efficiency and redefine traditional financial models.
Personal Finance Software Revolutionising Money Management
TechRadar highlights that personal finance software offers users a comprehensive view of their financial wealth by consolidating all their assets and liabilities into a single, accessible platform. This intuitive tool centralises critical information, including income, savings, debts, and account balances, which aids in sound decisions.
Additionally, tasks that once required manual effort, such as reporting, can now be seamlessly automated, assisting users in managing their budgets, monitoring spending, and planning for future financial goals.
With a wide selection of net worth tracker apps available, users can choose solutions tailored to their specific needs, whether for budgeting, investment tracking, or debt management.
3. Modernising Financial Advisory Services with Robo-Advisors
According to FinTech West, Robo-Advisors are financial investment software operated by intermediaries. They utilise trained algorithms and artificial intelligence (AI) to manage investments online on behalf of investors. These systems analyse investors’ financial situation to recommend suitable, low-cost investment options.
The investment process involves two phases: (1) a portfolio is created based on answers to predefined questions about factors like age, income, family background, investment amount, risk tolerance, and loss-bearing capacity.
(2) Consequently, the portfolio is managed similarly to classical fund management, with the algorithm rebalancing the assets if they deviate from the target allocation.
Robo-Advisors: The Future of Automated Investing
Investment research firm and online publisher Boring Money reports that, for the first time, robo-advisors now serve 20% of all Do-It-Yourself (DIY) investment customers in the UK.
As of Q1 2023, the UK has over 9.8 million DIY investor accounts, with robo-advisors managing over 2 million of them—equating to 21% of the market share by customer accounts.
This result highlights the growing adoption of robo-advisors in the UK’s DIY investment market, reflecting increased trust in automated financial management solutions.
Bridging the Financial Literacy Gap with Robo-Advisors
According to Financial IT, fintech is opening up investment opportunities for everyone, regardless of their financial background.
Robo-advisory platforms are leading the way, providing automated, algorithm-driven financial planning and portfolio management. They also boost financial literacy through educational resources like quizzes, articles, videos, and podcasts on topics ranging from investing and budgeting to debt and taxes, as referenced in LinkedIn.
Beyond educational offerings, these platforms also provide reports, charts, and simulations that help users understand portfolio performance, the drivers of returns, and how to refine their investment strategies.
4. Strengthening Credit Awareness with Monitoring Services
Investopedia states that credit monitoring services constantly track borrowers' financial activity, alerting them to potential fraud and changes in their credit profiles. This plays a crucial role in detecting identity theft, such as the unauthorised use of a stolen credit card, by identifying unusual spending patterns.
The State of Credit Monitoring Services in 2024
Mintel’s 2024 UK Credit Monitoring Market report reveals growth in the credit monitoring services market, driven by increased awareness and usage.
Over half of UK adults describing their financial situation as "struggling" used a digital monitoring service in the past year, likely to track their finances and potentially find support. Despite this usage, the market has room to grow, as 35% of all UK adults have never checked their credit score.
The Role of Credit Monitoring in Financial Awareness
A credit report is a crucial document that influences major financial decisions, including loans, apartment rentals, and job opportunities, as noted by the financial platform Zavo. It provides a comprehensive borrowing and repayment history, offering potential lenders, landlords, and employers insight into financial reliability.
Furthermore, regular credit monitoring ensures awareness of any changes that could impact these opportunities, as errors can lead to higher interest rates or loan denials. Monitoring also allows for prompt identification and correction of inaccuracies, maintaining an accurate and favourable financial profile.
Thus, credit report awareness and proactive monitoring are essential elements of financial literacy, equipping individuals with the knowledge and tools they need to achieve their financial goals.
5. Accelerating Loan Approvals with Lending Platforms
According to the software company Builtin, fintech lending leverages technology and digital platforms to streamline finding, applying for, and repaying loans.
Furthermore, online lenders expedite loan approvals by quickly accessing necessary data, allowing borrowers to receive their funds faster than traditional banking.
UK Fintech Business Impact on Business Loans
OakNorth, a UK fintech, transformed traditional small and medium-sized enterprise lending with its next-generation credit platform, as referenced on the UK Government website.
This innovative approach disrupted traditional practices, earning OakNorth a £2.1 billion valuation in 2019, making it Europe's most valuable fintech. That same year, it secured a record-breaking £327 million investment—the largest ever for a European fintech.
This emphasises OakNorth's pioneering role in modernising small and medium-sized enterprise lending and its significant contribution to the growth of the UK's fintech industry.
Lending Platforms as a Tool for Financial Empowerment
Lending platforms offer more than just quick loan approvals. According to Builtin, they also provide borrowers with tools to manage their finances, compare rates, and build better credit.
These tools empower borrowers to better understand loan terms, interest rates, and repayment strategies, helping them make informed financial decisions.
FinTech: The Key to a Smarter Financial Future
The UK’s dynamic fintech industry drives a global shift toward enhanced financial inclusion and education.
By introducing innovations such as digital wallets, personal finance tools, robo-advisors, credit monitoring, and advanced lending solutions, fintech is reshaping how people manage their money and their understanding of financial concepts.
This shift toward accessible financial literacy empowers individuals to make confident, informed decisions, improving their fiscal well-being. This empowerment, fueled by fintech’s continued evolution, will create a more inclusive financial ecosystem benefiting both consumers and businesses in the long run.
Financial Education: Frequently Asked Questions
1. What are the five principles of financial literacy?
The University of Pittsburgh defines financial literacy by five core principles: earning, saving and investing, spending, borrowing, and protecting. Focusing on these principles helps individuals make informed choices, manage risks, and work toward long-term financial stability.
2. Why is it important to financially educate people in the UK?
The Money and Pensions Service emphasises that education improves financial well-being and equips students with the knowledge and skills needed to manage their income effectively in adulthood.
3. How does fintech affect the financial industry?
According to the research conducted by Mohammed fawaz Alessa (2024), incorporating fintech solutions has streamlined processes, lowered costs, and enhanced accessibility, making financial services more inclusive and empowering consumers.
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