UK banks more resilient than US banks in turbulent market conditions, study shows

By Puja Sharma

As financial services providers and consumers face continued pressures from economic and market instability, a global leader in financial services technology, has fielded new research to explore how executives and consumers are responding to the environment, and how they’re making their financial or investing decisions.

The research found that financial services company executives in the UK are showing more resilience to market turbulence than their US counterparts. These findings come as the UK has experienced sharper rates of inflation that are still significantly higher than those in the US. Whereas the US saw its peak at 9.1% in June 2022, the UK saw its peak at 11.1% four months later in September 2022. Meanwhile, the UK is still experiencing a higher rate of inflation at 7.9% as of June 2023, compared to the recent drop to 3% in the US.

How executives and consumers in the UK are reacting to economic headwinds compared to the US:

• 78% of financial services company executives in the UK say high interest rates are impacting their company’s ability to innovate or invest according to the FIS study.
• In contrast, nearly all US-based executives in financial services surveyed (91%) said they were experiencing an impact from high interest rates.
• Consumers in both the UK and the US showed a similar level of concern over high interest rates, with 76% and 77% respectively saying they have or will have an impact on their financial decisions.

UK-based financial services executives are investing in AI at a faster pace than those in the US

• 58% of UK financial services company executives are increasing investment in generative AI, compared to 45% of US executives.
• Large financial services companies (£10B+) in the UK are driving the bulk of investment across the sector; with 75% of executives from these firms focusing innovation efforts on the ease and speed of opening accounts, ahead of other priorities.
• Driving this increase are UK securities and investments firms, with 61% investing in Generative AI vs just 41% of US firms
• In addition, 60% of UK fintech firms are investing in Generative AI vs 54% of US firms
• However, considerably more US banks are investing in Generative AI compared to UK banks. Only 36% of UK banks are investing in Generative AI, compared to 48% of US banks – suggesting UK banks risk falling behind when it comes to Generative AI innovation, despite the UK’s pro-AI stance.

“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 stabilize conditions,” said Himal Makwana, Head of Platforms, Strategy, Operations & Venture at FIS.

“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,” added Makwana. “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 personalized experiences and targeted services to make it easier to manage their money.”

About the Financial Services Expectations vs Reality research

FIS conducted a survey of 4,000 consumers and 800 financial service firm executives in the financial services industry in the US and UK in May 2023. This included 2000 consumers and 400 business executives in the UK.

•  According to a study of 800 UK and US financial service firms executives, 78% of financial services company executives in the UK say high interest rates are impacting their ability to innovate and invest vs 91% of executives in the US
• Around 58% of UK financial services company executives are increasing investment in generative AI, compared to 45% of US executives
• However, UK banks are investing in Generative AI less than US banks – and risk falling behind