Technology is the biggest driver of change in financial services with investment in digital capabilities firms’ top spending priority, according to survey of more than 100 UK-based financial institutions conducted by Lloyds Banking Group.
The survey also found FIs are pursuing different growth strategies to support their business plans.
Overall, 56 per cent of financial services firms agreed that technology was the biggest driver of change. When asked what they would do with £1bn of surplus capital, nearly a third (32 per cent) of FIs said they would invest in improving their digital capabilities.
Almost half (46 per cent) are looking to develop technology internally, but 34 per cent are looking at strategic partnerships, with just under a third (29 per cent) at acquisitions and a fifth (20 per cent) at third party ventures.
Interestingly, banks were the most likely to plan to develop technology internally, suggesting they had a slightly more cautious approach to expansion than other financial institutions.
Cybercrime and the speed of technological change each were identified by a fifth (22 per cent) of respondents as risks, though these came a long way behind financial market volatility and regulation (each on 77 per cent) as the biggest worries.
Ed Thurman, MD, Financial Institutions, said: “New technology is the source of so many opportunities for financial services businesses, and it has transformed everything from their understanding of customer behaviour through to their methods of communication. However, with these incredible benefits come serious risks – in the pace of change itself, and in the increasing threat of cybercrime. These are issues that the sector must tackle head on in order to position itself for success over the years ahead.”
Capitalising on technology: Big data and AI
Big data – the term used to describe the huge amounts of information that firms across the sector hold on customers and their spending habits – is seen overwhelmingly (by 65 per cent of firms) as the most significant technological opportunity for the year ahead.
But both artificial intelligence and blockchain received a more cautious reception. Half (52 per cent) of respondents identified AI as neither an opportunity nor a risk over the next twelve months, while understanding of blockchain – the technology that underpins the Bitcoin cryptocurrency – was also low, as FIs continue to grapple with the way this disruptive new technology can drive both revenue growth and deliver cost savings.
Thurman concluded: “Competition is the hallmark of any dynamic industry and the UK remains a welcoming environment to test propositions. As core banking systems are opened up for organisations to access open source banking data on customers, we predict a greater shift towards the US experience of strategic partnerships between established players and start-up FinTech challengers.”
The Financial Institutions Sentiment Survey canvassed more than 100 of the UK’s major financial services organisations – including major banks and insurers – on their opinions about the economy, technological change, regulatory pressures, investment plans and business risks.