Around 78 per cent of financial services companies in the UK say high-interest rates are affecting their ability to innovate and invest; according to a new study by US-based fintech FIS.
An even greater number of executives in the US (91 per cent) agreed with this sentiment, in the FIS study of 4,000 consumers and 800 business executives in the financial services industry in the US and UK. The study looked into the increased economic pressures facing financial services providers and consumers, and how firms are responding to the ever-changing environment.
FIS’ Financial Services Expectations vs Reality research explored how consumers are making personal financial decisions, as well as their expectations of financial service providers and banks.
Company executives in the UK appear to have shown more resilience to market turbulence than their US counterparts. While the UK has experienced sharper rates of inflation (significantly higher than those in the US), 13 per cent less of executives at UK-based firms believed they are being impacted by high-interest rates.
Whereas the US saw its interest rates peak at 9.1 per cent in June 2022, the UK’s annual rate of inflation peaked at 11.1 per cent in September 2022. Meanwhile, the UK is still experiencing a higher rate of inflation at 7.9 per cent as of June 2023, compared to the recent drop to three per cent in the US.
When it comes to consumers, people in the UK and the US showed similar levels of concern over high-interest rates: with 76 per cent and 77 per cent respectively saying they have or will have an impact on their financial decisions.
UK firms put their faith in the future of generative AI
Despite higher interest rates to contend with, UK-based financial services executives appear to be investing in AI at a faster pace than those in the US. Around 58 per cent of UK financial services company executives are increasing investment in generative AI, compared to 45 per cent of US executives.
Similarly, 56 per cent of UK executives say they will invest in AI and machine learning technologies for process automation, compared to 51 per cent in the US.
Large financial services companies (worth over £10billion) in the UK are driving the bulk of investment across the sector; with 75 per cent of executives from these firms focusing innovation efforts on the ease and speed of opening accounts, ahead of other priorities.
However, consumers revealed that their top two most sought-after features are an all-in-one platform for managing their financial services from all providers (44 per cent) and the ability to quickly set up or apply for more complex financial services transactions, like loans and investments (24 per cent).
“The need for businesses to innovate through economic uncertainty”
Himal Makwana, head of platforms, strategy, operations and venture at FIS, said: “Across all negative market conditions respondents were presented with, UK financial services executives said they were less severely impacted than their counterparts in the US. This could be in part because the UK financial services sector is nimbler and more resilient to shocks, particularly given the current government’s efforts to stabilise conditions.
“With consumers showing significant concern about the state of the economy, especially higher inflation and interest rates, businesses are exploring how they can build trust with existing and potential new clients. Many of the executives we surveyed plan to do so with future-looking technology, such as embeddable financial services using APIs, blockchain and generative AI, to deliver advanced customer experiences.
“We are seeing a divide in how financial services companies are investing in new technology and what types of solutions consumers want most from their providers, according to this study. At the root of this gap between executive investment and innovation and consumer expectations seems to be the need for businesses to innovate through economic uncertainty.
“For example, many UK businesses are investing in automation and self-service, which can reduce costs while enhancing the customer experience. On the other side of the coin, consumers worrying about their finances are seeking personalised experiences and targeted services to make it easier to manage their money.”