While the rollout of multiple Covid-19 vaccines has created a glimmer of hope for citizens of the UK, the implementation of yet another national lockdown is further evidence of the fact that we still have some way to go before any kind of return to normal. The pressure remains on the government to come up with fiscal stimulus packages that support vulnerable communities and hard-hit businesses.
However, throughout the coronavirus pandemic, the UK government has consistently faced criticism of being slow to act, quick to U-turn, and stubbornly reactive. As a result, we often see headlines that underscore rising inequalities and the plight of those left behind across the country. Politics and personalities have certainly not helped in co-ordinating a coherent response, but this is where big data and fintech tools can play a supporting role.
While financial services and payment systems have been moving online for some time, 2020 was a big year for the digital economy. Since March 2020, the imperative for people to socially distance has led to a surge in the use of digital wallets, electronic payments and online financial management. Fintech has enabled and enhanced the consumer experience while generating a treasure trove of data for businesses, and now governments, to interrogate.
A significant barrier to achieving better outcomes and value for public money is the lack of timely data on public behaviour. Traditional sources of official data such as that provided by the Office for National Statistics (ONS) are often at best published on a monthly basis, with a significant lag between when the data is gathered, reported and then used to inform policy decisions. This may result in suboptimal outcomes whereby government support packages don’t reach their intended targets in a timely way. If the aim is to enable greater efficacy in public spending, governments will need access to, and expertise in evaluating, an array of real-time data sources.
Fintech can offer governments, both local and national, the ability to track and better understand consumer and business behaviour at a micro level. Currently, such platforms provide insight into how spending has been affected by the pandemic. Real-time data pinpoint where, when, how and by whom transactions are taking place, based on their geographic and demographic information. Transaction-based data can also reveal how local trading restrictions and Covid-19 infection rates are affecting broader spending patterns. This can help to identify the sectors and types of businesses that are most negatively impacted, thereby informing the design of policy support measures.
The staggering amount of public funds used to support the economy during this deep recession requires a far more targeted approach at this stage. Understanding how consumer behaviours change and are influenced can increase the likelihood that stimulus packages deliver on their intended effect. For example, are funds reaching the intended beneficiaries and being spent rather than saved? If there has been a pronounced shift to spending online, is this a response to the pandemic, or simply an acceleration of behaviours we were already seeing pre-crisis?
Such data offers rich insight into policy design and how it can be better formulated to address regional and socio-economic disparities that have surfaced due to the economic shock. For example, spending patterns and consumption habits could inform how the government designs a progressive tax system that is fairer and more transparent. Moreover, if the accelerated shift to online transactions continues at pace, what will this mean for the high street and, by extension, local revenue from business rates?
At the time of the 2008 financial crisis, the public sector did not have access to this degree of financial and behavioural data. The pandemic has facilitated a mass mobilisation toward fintech that would otherwise have taken decades to achieve. In turn, the likes of the ONS and Bank of England have started to consider more real-time sources of data than ever before. Tech giants such as Google, Apple and PayPal have disrupted how payments and transactions occur in a more digitised economy. While by no means perfect, there is certainly room for such data to complement the national statistics. Indeed, fintech can allow the public sector to synthesise high-frequency changes in consumer behaviour at a relatively low cost.
Governments, both local and national, have an opportunity to seize the data revolution enabled by fintech. Such innovations have the potential to contribute to more agile policy making that can improve resilience today to better address the financial shocks of tomorrow.
by Jeffrey Matsu, Chief Economist, CIPFA