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The digital banking trends set to shift the UK finance scene

by Uma
iStock 1146417905

The digital banking trends set to shift the UK finance scene

 

Dr Hassaan Khan who is Head of Digital Finance at Arden University

For the UK market to remain globally competitive in the financial world, there is a pressing need for the industry to be quicker at adopting digital transformation. But, compared to other countries across the globe, the UK financial world is notoriously slow at picking up pace; add to this the drop in the GBP, recession and more government borrowing, and the banking sector has its work cut out for it.

Dr Hassaan Khan, Head of Digital Finance at Arden University, will discuss the digital banking trends that are set to add pressure to the financial world and how prepared the UK is. Touching on the financial difficulties the entire country is facing, he will also expand on how consumer behaviour has altered and how banks can prepare for the waves of changes the industry is set to face.

The UK is one of the world’s most renowned financial hubs, but there are many other economies that are rapidly growing and picking up pace. When watching how the rest of the world is advancing, we begin to question whether this could be in part due to the forward-thinking and responsive financial industries of such economies.

China, for instance, has the highest number of fintech users, with about 87% of the digitally active population using technology to manage their finances. Its fast growth and demand for fintech along with rapid international expansion has allowed China to develop an especially distinctive finance industry that supports its growing economy.

The finance industry is critical to any economy. No wealthy nation is without a sophisticated finance industry and the benefits of an efficient industry are obvious: strong economic growth, social mobility, and better pensions and savings. Essentially, if the finance industry fails to perform well, instability sets in. So, what are the current digital banking trends and how well prepared is the UK for the developments the financial industry is facing?

Dabbling in risky business

The past few months have seen a lot happening in the banking world – from the Silicon Valley Banking scandal to the shocking collapse of Credit Suisse, we have reason to believe that the banking industry should be on high alert. 

Even at the start of the year, The Bank of England sharply criticised UK lenders for failing to tackle the risk management blind spots exposed by the collapse of a multibillion-dollar hedge fund, the energy price shock and other crises that have rocked financial markets in recent years.

With digital banking allowing people and companies to have better, quicker access to their money and finances, the importance of effective risk management will not only grow, but become more versatile. From cyber threats to intellectual property theft, and the loss of reputation all the way to fraud, the top risks for fintech companies are as complex as they are varied.

Cybersecurity is one of the biggest risks the financial services industry will need to tackle. The bigger the scale of digitisation in banking and financial services, the more windows of opportunity cyber-criminals will have to strike. The fintech industry is already responding and developing tougher cryptography to keep hackers at bay.

However, a report found that the UK’s finance sector as a whole is struggling to keep cybercriminals at bay, with the average finance company in the UK suffering an average of 60 cyberattacks in 2021. Such attacks are set to increase and become more malicious, yet less than half (42%) believe they are well-prepared against these attacks.To prepare for this, UK Banks and financial services institutions will have to invest large sums of money to upgrade their cybersecurity systems.

All in all, the management of big data and technology supervision, has, and will continue, to change the risk-management model of commercial banks; it should improve bank’s risk-management capabilities, therefore reducing the ultimate risk. The element of ‘risk’ plays a big factor when it comes to fintech development – one which ultimately will impact the following trends I mention – the biggest one being: AI.

Digital advancements and customer experience 

Just as our mobile phones once did, the digital world will open a new realm of possibilities for the financial world. It won’t be without risk—which banks, as mentioned above, should be equipped to manage.

Before we move on to how different technological trends are impacting the financial sector as a whole, we have to give credit to how technological advancements have ultimately changed the customer experience. 

Customer behaviours can now be automatically tracked to quickly detect anomalies, with flexibility designed according to bespoke levels of risk. The agility alongside the creative and innovative use of technology software is allowing the financeindustry to tackle financial crime and fraud in an entirely new way. But while technology gets smarter, so do fraudsters and scammers – something which many industries are well aware of.

As well as this,efficient customer experience may prove to be a unique challenge for the UK.Last year, EY reported that more than 7,000 finance jobs have moved from London to the EU as a result of Brexit. Because of this, some bankers have privately expressed that in the longer term, it may not make commercial sense to have big hubs in London and the EU. The movement of finance jobs is likely to not only threaten how the customer experience develops and whether it can keep up with the demands, but also impact how the UK financial industry grows.

Nonetheless, over the last few years, the financial services industry has shifted to putting consumers first. Today’s consumers are liberated with a broad range of services and products and a newfound sense of power over their spending habits. With a rise in card-linked rewards, personalised loyalty programs, buy-now-pay-later solutions and more, consumers have more choices over how and when their money is spent.The power has essentially shifted to consumers, and it isn’t going away anytime soon, meaning that the UK financial scene has to keep up.

The tech trends infiltrating finance: Metaverse, Cryptocurrency and Blockchain

Following on from how customer experience is shaping the financial industry, the metaverse could seriously shake up the way fintechs interact with their customers. Some expect that by the end of this decade, around 50% of banks globally will be using AR/VR as an alternative channel for customer transactions as well as for employee engagement.

The metaverse can potentially offer a much more personal and exciting experience for accessing financial services, but for banks, it will open up new avenues of revenue – especially those pertaining to crypto investments and NFTs.

Butin order for this to work, the UK needs to clear up legislation to allow banks to confidently embrace cryptocurrency transactions. At the start of the year, we saw some banks taking a cautionary approach by banning customers totrade with cryptocurrency, due to its appetite for risk and volatile nature. The traditional financial ecosystem is heavily regulated and to avoid being left behind, more clarification is needed on the usage of cryptocurrency in order for the UK to remain competitive in this space.

Regardless, cryptocurrency adoption could streamline, enhance, and upgrade financial services, and there are plenty of recent industry advancements that can ease banks’ concerns about the risks and instead let them recognize the potential benefits.On top of this, blockchain technology – which cryptocurrency relies on – also has a lot of space to thoroughly transform the financial industry.

For example, using blockchain would allow banks to perform cheaper, more efficient transactions while maintaining tight security. It can also be used to handle peer-to-peer lending, an industry that could see a growth of up to $150 billion by 2025. This view is supported by most finance and technology experts.

More banks are moving to cloud-based banking and blockchain will no doubt play a role in this. HSBC and Wells Fargo already use blockchain technology to settle forex trades; Paypal, Mastercard, and JP Morgan all allow users to make payments on their networks using blockchain currencies. This involves cryptocurrency, of course, but it shows banks’ willingness to embrace blockchain. 

To date, the UK government and regulators have taken a balanced and flexible approach to the use of blockchain technology and have voiced support for its development, as it has been recognised that this technology has the potential to deliver significant benefits. There remains to be apprehension toward blockchain and crypto,but if the UK allows its trepidation to rule, it could easily fall behind other leading economies that embrace the qualities blockchain provides.

Digital banking and technology have allowed people to have more financial autonomy and control over their finances; while the fintech space has allowed this to happen in an efficient manner, taking it to the next step to remain competitive with the rest of the globe, is a challenge on the UK’s financial system. Finance can no longer be a slow moving industry that relies on the bounds of insufficient regulation and adaptation – UK finance needs to think one step ahead to keep being the global financial hub it is renowned for. 

 

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