Impact of Financial Technology on Retail Banking in the UK: A Study

Until recently, the banking industry has largely been unaffected. This has changed because of the advancement of businesses that use technology for various financial solutions such as insurance, payments, and personal financial management (Ajlouni & Al-hhakim, 2018). The distinction between financial services and technology organizations has been blurred, and Fintech is at the epicentre of this transition. Both companies (financial services industry and technology firms) are using Fintech to increase operating quality and consumer service while also recognizing the need to forge new commercial opportunities (PWC, 2019). 

Innovations and advancements in information and financial technology have raised the need for more creative solutions (Rom?nova & Kudinska, 2016). According to Puschmann (2017), fintech is a combination between financial and technology that denotes the use of technology to produce financial products (Castro, Rodrigues, & Teixeira, 2020). Prior to the global financial crisis, Freedman (2006) explained in his book, the introduction to financial technology, that financial technology is concerned with developing structures that process and value financial products such as stocks, shares, money, and contracts. The Financial Stability Board described fintech as technological advances that result in new business models, products, applications, and processes in financial services (FSB, 2020). The 2008/2009 financial crisis had a negative impact on the banking system, necessitating increased financial sector supervision. Despite tighter supervision in the finance industry, reforms in some countries lowered entry barriers for start-ups (Castro et al., 2020). This resulted in the rise of fintech in 2008, as well as technical advancements for mobile phones and tablets. 

According to the survey, 25% of these firms are in the payment and transaction industry, 22% are in the banking business, 14% control their customers' money, and 7% are in the insurance sector. The Basel Committee on Banking Supervision (2018) classified fintech into three product sectors: deposit, credit, and capital raising services, which include lending, crowdfunding, mobile banking, credit scoring, payment, clearing, and settlement services, which were divided into retail and wholesale. Mobile wallets, peer-to-peer exchanges, and digital currency are examples of retail, while value distribution networks, forex wholesale, and digital trading sites are examples of wholesale. Finally, there are wealth advisory facilities, which are further subdivided into high-frequency investing, copy trading, e-trading, and robo-advisor.

The main aim of this study is to understand the impact financial technology is having in UK’s retail banking industry.

The following research objectives will be considered in order to contribute to the main aim of this study:

Literature Review

1.To determine the degree to which the advent of financial technology rivals has made conventional banking contestable.

2.To evaluate the effects of artificial intelligence and large-scale data processing in finance.

3.To investigate the process and structure of change in the financial industry arising from new technologies.

4.This study also aims to include cohesive research trends established by policymakers, scholars, and finance experts, as well as focused on a critical review of the literature.

To understand from industry experts as to what impact is fintech having on retail banking. 

The objectives, when aligned with the aim, include a conceptual framework that will serve as a guide for this analysis. The first three objectives necessitate a careful examination of how the evolving financial technology ecosystem has provided new ways for start-ups to compete with incumbents, as well as the effect these developments are having on the financial sector in general. The fourth objective relates to literature review, which consists of research of policymakers, academics and financial experts on the impact of financial technology. The fifth objective is based the research method approach for the purpose of the study and the goals to be achieved by it.

When technology advances, certain industries' performance drivers, products, and characteristics change (Afuah & Utterback 1997). This phenomenon has had a significant impact on the financial services industry, as fintech provides clients with new options. As a result, over the last decade, there has been a significant uptick in scholarly literature on financial technology in general, as well as studies on whether financial technology has a negative or positive effect on conventional retail banks. Research tends to be scantily connected with no coherent research agenda. This chapter offers coherent research themes formulated through policymakers, academics and finance experts and also based on critical assessment of the literature.

Fintech has risen to prominence in the United Kingdom as a global pioneer in financial disruption, demonstrating its ability to effectively unbundle bank services while offering greater pricing and a better customer experience (Chishti, 2016). According to reports, the United States and China led the way in fintech investment in 2015 (KPMG, 2015). However, the number and scale of fintech firms continue to expand in Europe, especially in the United Kingdom. This is due to several converging industry forces that are generating an extremely favourable environment for investment in the fintech field (Macnab, 2020). It is evidence that UK fintech had the highest investors in fintech than any other European country in 2018 (DIT, 2019). The U.S. is still leading in the fintech race, but UK is currently ranked second with over $2.2 billion across 142 deals (London & Partners, 2019).

This chapter provides the philosophical perspective for this study, as well as the research methodology, research process, and research design, which is supplemented by the research strategy and data collection and analysis. 

The relationship between the researcher and how reality is captured is described as epistemology (Carson, Gilmore, Perry & Gronhaug, 2001). Interpretivists claim that humans are distinct from physical objects, and that in order to construct human intelligence, meaning, human perception, fictional accounts, and explanation must be used (Saunders, Lewis and Thornhill, 2016). The inability of positivism to meet the needs of social scholars is due to the fact that positivist theory is founded on scientific methodology and law-like generation, which has led to opposition from scholars who argue that it is impossible to separate individuals from the social environment in which they exist (Collis & Hussey, 2014). The challenge for interpretivists is to join the social worlds of the study subjects and gain an interpretation of the social universe from their perspective (Saunders, et al., 2016). The aim of this research is to look at the effect of fintech on retail banking.