The Future of Finance: How Technology Will Transform London’s Financial Sector

The UK financial services sector contributes £173.6 billion to the economy, with London accounting for around half of that output. The sector is crucial to the UK’s growth, contributing £28.8 billion in tax revenue in 2020/21.

However, the sector has been slow to adopt new technology, with many companies still relying on outdated, sluggish legacy software. Readily available disruptive, cutting-edge technology gives early adopters and startups an advantage over those that still hold traditionalist attitudes or have been slow to update.

The finance sector must become more agile and responsive in the face of regular regulatory updates and the ever-present threat of cyber crime.  Alongside Tokyo and New York, London is one of the three main global financial centres. London’s financial sector needs to be backed by the best technology to remain competitive and secure.

The Role of Technology in Transforming London’s Finance Sector

Technology has had a profound impact on business. Every sector has seen the benefits of digital transformation, from better quality control in manufacturing to greater access to data in legal.

In finance, technology will support critical functions like regulation and cyber security, and drive innovation in productivity and service provision. 40% of respondents in a survey within the retail banking industry believe that cloud-based technologies generate business value, while 53% believe the cloud is having the biggest impact on improving operational efficiency.

Leveraging technology correctly can help firms better assess their risk management and ensure acceptable liquidity levels to prevent over-exposure. By adopting technologies like the cloud, firms can quickly adapt to changing customer habits without disrupting services and collect more information that can inform future strategies.

Work Environments

One of the greatest advantages of technology is its ability to link workforces. COVID-19 highlighted the UK’s reliance on ‘traditional’ work methods – many companies found it difficult to shift from in-person office work to online remote work.

From video conferencing to virtual work computers, developments in office technology have given workplaces the freedom to explore new ways of working. Enforced work-from-home orders made staff realise the benefits of remote work, partly leading to the ‘Great Resignation’ as workers sought more favourable working conditions.

The finance sector’s strict regulatory requirements mean that companies must take additional precautions when introducing remote or hybrid work options. The FCA published guidelines on what expectations are required. These include assurances that introducing remote or hybrid work will not cause detriment to consumers, damage market integrity or increase the risk of financial crime, amongst others.

Innovations like the cloud can support firms looking to make the transition. Products like Azure Virtual Desktop deliver personalised virtual desktops wherever staff are connecting from. Cloud tools like this support Bring Your Own Device policies and remote work by allowing staff to connect and access internal files and applications securely.

Automation

Finance is known for its repetitive tasks. Weekly reports, quarterly earnings, and the annual tax season are all part of the sector’s less glamorous side. Data analysis of potentially millions of customers is a huge undertaking.

Automation is one of the biggest drivers for increasing efficiency and productivity. Access to cheaper, more powerful technology than in the past means that companies can make huge time savings with the assistance of cloud tools and artificial intelligence.

For instance, research has found that currently-available technology could fully automate up to 77% of general accounting operations, along with 75% of revenue management and 35% of financial controlling and external reporting.

Financial controlling and external reporting, in particular, are critical tasks that need to be completed correctly. Misreporting figures could lead to investigations and potential fines, damaging a firm’s credibility. Automating critical finance functions will help reduce errors and ensure accurate reporting for internal strategic planning and satisfying external regulatory commitments.

Service Provision

Customer demands are changing in the face of powerful home technology like computers and smartphones. They now want convenience, like the ability to check their finances online rather than having to go into a branch.

Mobile banking apps allow customers to open accounts, check their balances, move money, manage payments (like direct debits) and even cancel stolen or misplaced cards, all on their phones.

A 2020 survey found that two-thirds of UK adults use online banking services at least once a month. While a minority (23%) are uncomfortable with online banking, the majority of Brits are now using and enjoying the benefits of these services.

In the face of online services, brick-and-mortar bank branches are becoming redundant.

Atom Bank provides its services entirely over the Internet, using Google Cloud Platform to deliver apps and online support for its customers. Without the cost of physical branches, Atom is free to innovate with its online platform and offers highly competitive rates for its accounts.

Increased investment in online services by every major ‘traditional’ bank suggests that mobile apps and websites are the future of banking services. Between 2012-2017, bank visits decreased by 26%, and the pandemic has only accelerated the move from in-branch to online.

However, just 8% of people never visit a branch for banking. Physical branches still serve a purpose, which is why major banks, including Barclays, HSBC, Nationwide, Natwest and Santander, are collectively funding ‘banking hubs’.

These shared hubs are run by Post Office staff and provide regular counter services (such as withdrawing and depositing cash) for customers who have accounts with banks that are signed up to the Banking Framework Agreement. As of April 2023, more than 50 banking hubs have been announced across the UK. Customers can talk with staff from their bank, who will work in the hubs on alternating days.

Cyber Security

Cyber crime is an ever-present threat to businesses. In a sector as sensitive as finance, companies need to be aware of their obligations to data security and the dangers that could threaten that.

Financial services providers are entrusted with every customer and client’s personally identifiable information. Cyber criminals value this information as tools to launch further attacks and assets to sell to other bad actors on the dark web.

The FCA received a 50% increase in reports of cyber attacks in 2021. In addition, the UK’s support for Ukraine following Russia’s invasion prompted the National Cyber Security Centre (NCSC) to advise businesses to bolster their cyber defences against possible attacks.

Simple changes like spam filters and firewalls can help firms protect their staff and customers. Access to regularly updated online training resources will help staff identify phishing attempts and learn procedures for reporting suspicious links and emails.

In addition, advanced real-time scanning and reporting software, like SIEM, can reduce human error in cyber security scanning and reporting.

The Right Technology Will Ensure London’s Continued Competitiveness In Global Finance

There are risks when adopting new technology, especially in the case of something like public cloud infrastructure. In such a sensitive sector, any new technology must be treated with caution, ensuring that the potential risks to data security don’t overshadow the benefits.

More productive workforces, greater customer insights and easier compliance with regulations are all possible with the latest technology. The right investments in modern technology can help London’s finance sector maintain its competitiveness in an online world.