By Dr Hassann Khan, 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.

Earlier this month, the UK financial sector faced some sad news amongst the chaos of recession rumours, inflation and collapsing economy – the news that the capital lost another status symbol: it’s no longer home to Europe’s biggest stock market.

This marks a huge reversal of fortunes for the London Stock Exchange, which was worth about $1.4 trillion more than its current successor, France, back in 2016. There are talks this could be down to the lingering impact of Brexit, Liz Truss, the ongoing price rises and expensive export and imports of goods.

But when we take a moment to look beyond one of the globe’s most renowned financial hubs, we see there are many economies that are rapidly growing and picking up pace and begin to question whether an element could be due to the forward-thinking and responsive financial industries of such economies.

China, for example, 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, how well prepared is the UK for the developments the financial industry is facing?

Financial Services and Blockchain

Until recently, blockchain technology has been synonymous with cryptocurrency. According to Josh Howarth, a financial trends expert in San Francisco, California, technology will now become more integrated with existing financial systems. 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. However, just a few months ago Bank of England’s Deputy Governor Jon Cunliffe said “using blockchain technology which underpins cryptoassets to offer instantaneous trading and settlement across all financial markets is not desirable given the challenges it would pose”. The apprehension toward blockchain and crypto is rightly felt and with the recent collapse of FTX, concerns are only set to grow. But if the UK allows its trepidation to rule, it could easily fall behind other leading economies that embrace the qualities blockchain provides.

Cybersecurity Concerns

The digitisation of the financial services industry will inevitably put an even greater focus on the role, scope and importance of cybersecurity. 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.

The Bank of England reported that cyberattacks are the biggest risk to the UK financial system with 74% of respondents to its survey deeming a cyberattack to be the highest risk to the financial sector in both the short and long term, followed closely by inflation or a geo-political incident.

In addition to this, last year, a report found that the UK’s finance sector 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.

Customer Experience

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.

Banks and fintechs are needing to constantly evolve their offerings to meet customers’ demands, and this trend will continue well into the future of banking — making end-users the real winners. The power has shifted to consumers, and it isn’t going away anytime soon.

Focussing on customer experience may prove to be a challenge for the UK, however. Earlier this year, EY reported that more than 7,000 finance jobs have moved from London to the EU as a result of Brexit. In response to this, it has been reported that bankers have said privately 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.