Financial technology could be an antidote to lagging productivity in the U.K. financial services sector, according to David Ramsden, Bank of England deputy governor for markets and banking.
"As a member of the Monetary Policy Committee, I need to be open-minded about the way fintech could impact the economy of the U.K. The defining trend of the last 10 years has been the weakness of productivity. Given the size of the financial sector in the U.K., I can see fintech driving competition and a pick-up in productivity in the medium term," he said in a speech at the HM Treasury International FinTech Conference in London on March 22.
The U.K. economy as a whole has grappled with low productivity since the global financial crisis, although it saw the fastest rate of productivity growth in more than six years in the three months to September 2017, according to data from the Office for National Statistics.
Ramsden said: "Investment in the U.K.'s financial technology is going to be an important factor in sustaining the U.K.'s global position. With its open approach of considering, adapting to and applying fintech across the breadth of its mission [to promote monetary and financial stability], including through its own investments, the bank will play its part."
As a regulator, the BoE will also have to be "open in how it considers and responds" to changes arising from Open Banking and the second Payment Services Directive, or PSD 2; two pieces of legislation relating to retail banking which came into effect in January. Both will allow third-party fintech and payment services companies to plug into consumers' bank accounts, with permission, to provide products and services. Open Banking will apply only in the U.K. and PSD 2 across the European Economic Area.
Ramsden pointed out that the BoE had already factored in the additional competitive pressures that fintech could create in retail banking into its 2017 stress test, in which they were part of the biennial exploratory scenario, a new addition to the stress tests which assumes "severe and synchronized" stress to the U.K. and global economies, among other factors.