The UK economy still remains vulnerable at large. Despite the recent stability in interest rates, the nation is still grappling with higher mortgage rates, rising taxes, households struggling with savings and an incline in corporate insolvencies. In comparison to other global economies, the UK (alongside Germany) was the only G7 nation to have a smaller economy at the start of this year than at the end of 2019, according to the quarterly official figures.
The current financial climate has tested Brits, and despite its resilience, there are still concerns that the mark the UK has on global finance is slowly dripping away. In this article, Dr Hassaan Khan, Head of School of Digital Finance at Arden University, looks at some of the financial trends that may see the UK falling behind stronger nations.
Digital advancements and AI
This rapid intake of advanced technology is pitting different economies against each other – who will be the first to really transform and offer businesses and people better service, more refined compliance, stronger capital growth and more personalised forecasts? When watching the rest of the world advance, we see how forward-thinking and responsive other global financial industries are. China, for example, has the highest number of fintech users; its responsiveness alongside rapid international expansion has allowed the development of a distinctive finance industry that supports its growing economy.
There are also many developments occurring in the background when it comes to transformation that are spurring competition – AI, blockchain, and cryptocurrency to name a few. They all point towards a more advanced and eager customer base. That is, one that wants greater control, autonomy, and a more personalised service than ever before.
Using the benefits of blockchain, for example, can allow banks and businesses to perform cheaper, more efficient transactions, while maintaining tight security. This is an industry that could see a growth of up to $150 billion by 2025, and one that could certainly shift the way financial transactions in peer-to-peer lending occur. AI will also infiltrate a lot of areas within the finance industry – from AI algorithms that can enhance liquidity management, to machine learning (ML) models helping to understand the underlying relationships in large datasets to manage risks. The number of UK financial services firms using ML is rising, with 72% of firms reporting that they’re either using or developing ML applications. It’s no surprise, therefore, that the financial industry is set to become the largest investor in AI in 2023.
Research from PwC shows the competition has already begun, with the greatest economic gains from AI predicted to boost China’s GDP by 26% in 2030 and North America’s by 14.5%. This is reported as the equivalent of a total of $10.7 trillion, and it accounts for almost 70% of the global economic impact. The race towards transformation has started – but will the UK be quick enough to catch up?
Will the hare win the race?
With a technological revolution underway, the risks are also building. By racing to the finish line too quickly, businesses and markets are making themselves vulnerable to not being efficiently prepared to handle the risks and quick-to-pounce fraudsters.
Cybersecurity remains one of the biggest risks the financial services industry needs to tackle. The fintech industry is already responding and developing tougher cryptography to keep hackers at bay, but one report found that the UK’s finance sector as a whole is struggling, with the average finance company in the UK suffering an average of 60 cyberattacks in 2021.
There’s also growing concern about protecting consumers and investors, especially in regard to data handling, as the volume of data used in AI raises questions about data protection and privacy. There is a need for governments to keep on top of legislation and regulation in this arena to keep any disasters at bay. However, the UK has been ranked as ‘the fraud capital of Europe’, with Britons nearly nine times more likely to be victims of scams than their counterparts in Germany. With this in mind, it appears the UK has been slow to react to the challenges faced, and while the government launched a new fraud strategy a few months ago, some argue it was a little late.
All in all, to remain competitive with the rest of the globe, the UK’s financial system can no longer be a slow-moving industry that relies on the bounds of insufficient regulation and adaptation. With technology transformation happening at a rapid pace, we need our renowned financial hub to be a step ahead to remain at the top.