SCOTLAND’S financial sector needs to speed up its adoption of technology to help avoid a future banking crisis, experts have warned.
Although financial technology – or fintech – has huge potential for the country in the years ahead, academics at the University of Strathclyde said failing to adopt the latest innovations could lead to the loss of 14,000 jobs and £635 million in wages.
The warning came ahead of a major industry conference staged at the university yesterday bringing together bankers, insurers and fund managers from across the sector in Scotland.
Daniel Broby, director of the university’s Centre for Financial Regulation and Innovation, said: “Fintech is evolving at a rapid pace and the consequences of digitalisation are being hailed as a ‘game changer’ for both the banking and securities industries.”
Broby said the changes will be good news for consumers with instantaneous financial transactions, paper money being replaced by digital cash, and entrepreneurs being able to raise money directly from the public. Last year saw £10 billion invested in fintech start-ups globally and Broby said the sector has the potential to create nearly 15,000 jobs in Scotland over ten years.
“But it is critical that we create the right conditions to enable companies to develop fintech faster, if Scotland’s financial sector is to remain globally competitive. The technology exists. Either Scottish financial institutions adopt it and thrive, or they ignore it at their peril,” he warned.
The conference heard that fintech – a sector which includes Scottish firms such as Nucleus, MoneyDashboard and Freeagent – is being driven by two major innovations, blockchain and distributed ledgers. Blockchain will enable transactions over the internet, and will allow online payments to be sent directly from one person to another without having to go through a financial institution. Distributed ledgers have the potential to transform the way the financial sector handles identity, transactions and debt information.
Broby added: “In Scottish bank and fund management operations, fintech is already used. This is, however, largely developed in-house and as such is not cutting edge.
“The gradual trend has been for traditional banks to move to off-the-shelf solutions and to leave the in-house developed legacy systems. We argue that this should be accelerated. There’s potentially a huge opportunity for Scotland but we need to seize it.”
Industry body Scottish Financial Enterprise recently established a fintech strategy group to bring together representatives from across the sector with government to take a five-year forward look at new technologies and the risks and opportunities for Scotland. The financial services sector employs an estimated 100,000 direct posts and a similar number of indirect positions. It generates more than £8bn for the Scottish economy.