Fintech: should we believe the hype?
The UK is a world leader in financial services and London is widely regarded as the world’s most important financial centre. As a result, future trends in financial services, particularly technological development, could have a significant influence on the future of the UK economy.
New technology is opening up a wide variety of possibilities. One area is the ‘democratisation’ of finance, with smartphone apps and peer-to-peer lending services enabling consumers and businesses to bypass the big financial institutions. Sections of society that are ‘unbanked’ or ‘underbanked’ – largely ignored by traditional institutions – could benefit from new tech, too. Trading in shares and other financial instruments has long since ceased to be the exclusive realm of stockbrokers, with technology now allowing individuals to trade directly. Beyond providing greater access for consumers, machine learning and artificial intelligence could improve the way trading is done, while smart ledgers based on ‘blockchain’ technology could increase the reliability of records and give greater assurance to financial transactions.
But while new tech could make existing transactions more efficient and open up new forms of financial services, critics have been sceptical about whether fintech really has the potential to be transformative rather than producing more incremental gains. Moreover, trust issues remain in relation to peer-to-peer lending and the use or abuse of customer data. Critics have pointed to the reliance on automated systems to conduct trades as a source of instability, creating rapid and startling booms and crashes in share prices, for example. The dangers of hype were well illustrated by the sudden explosion and collapse of the price of Bitcoin earlier this year.
Can fintech come to the rescue of a fairly moribund UK economy? Does the democratisation of financial services offer long overdue opportunities for underserved sectors and a chance to cut out the middleman for everyone? Is the potential threat to the established financial elite a cause for concern? Will the potential for a ‘fintech revolution’ be undermined by issues of trust? Does the excitement around fintech merely highlight the UK’s dependence on financial services and the lack of innovation elsewhere in the economy – or does it demonstrate continuing innovation in a globally important sector where the UK is a world leader?