The UK economy shrank by 0.5% in July with wet weather and strikes to blame. With the wavering inflation levels and uncertainty surrounding the cost of living, the UK economy’s growth continues to have a direct impact on financial institutions.
Rising inflation makes it more expensive for businesses to operate, as well as customers having less money to spend. A direct result of this pairing is the slowing down of economic growth. Banks also suffer at the hands of rising inflation as they face a lack of money due to their policies of borrowing money at lower interest rates and lending it to customers with higher interest rates.
Increasing uncertainty is another significant concern. The UK government is now engaged in a leadership election, and there is considerable uncertainty regarding the country’s future. This uncertainty is making firms and consumers more cautious, which may reduce economic activity even further. Uncertainty may also make it more difficult for banks to make loan choices, since they may be less certain about their borrowers’ future repayment capabilities.
As traditional banks feel the effects of the economic crisis, digital banks, like Black Banx, are offering ways to help the economy.
Founded by German billionaire Michael Gastauer, Black Banx is a digital bank based in Toronto, Canada. Offering a range of services to individuals, businesses and institutions, the company primarily focuses on cross-border transfers, crypto banking and making sure everyone has access to a financial service. As of June 2023, the bank has 28 million customers, making it one of the world’s top digital banks. But, how can services like this help grow the economy?
Increase financial inclusion: Because digital banks often have lower entrance hurdles than traditional banks, they can reach a broader spectrum of consumers, particularly those underserved by traditional financial institutions. This has the potential to promote financial inclusion in the United Kingdom, which is critical for economic progress. According to a Financial Conduct Authority survey, digital banks are more likely than traditional banks to give accounts to persons with bad credit.
Reduce costs: Because digital banks have lower overheads than traditional banks, they can pass these savings on to their clients in the form of cheaper fees and interest rates. This can make it simpler for firms and households to get loans and save money, boosting economic activity. According to a Which? analysis, digital banks pay an average of £500 more in interest on savings accounts than traditional banks.
Increase efficiency: Digital banks use technology to automate many of the functions that were formerly undertaken by human employees, such as transaction processing and loan approval. This can aid in improving efficiency and lowering expenses, which can benefit the economy as a whole. According to a McKinsey research, digital banks may save up to 30% on operational expenses when compared to traditional banks.
Encourage innovation: Digital banks are frequently at the forefront of technical innovation, which may contribute to economic growth. Blockchain technology, for example, is being used by digital banks to provide new ways to make payments and move money. This might make foreign trading easier and cheaper for firms, boosting the UK economy.
Reach new consumers: Digital banks may reach customers who traditional banks do not service, such as individuals who reside in remote regions or have weak credit histories. This has the potential to stimulate economic activity in these places. According to a research conducted by the Centre for Economics and Business Research, digital banks have the potential to expand the number of individuals with bank accounts by 1.5 million.
Help small businesses: Digital banks can make it easier for small enterprises to obtain the funding they require to develop. They can also provide a broader choice of products and services suited to the specific needs of small enterprises. According to a British Business Bank survey, digital banks are more likely than traditional banks to lend to small businesses.
Improve customer service: Digital banks may employ technology to provide consumers 24/7 access to their accounts and to swiftly and easily address difficulties. This may assist the economy by increasing consumer pleasure and loyalty. According to a Customer Experience Council research, digital banks outperformed traditional banks in terms of customer happiness.
Overall, digital banks have the potential to significantly help the UK economy by making financial services more accessible, efficient, and economical. As the digital banking industry expands, it is expected to have an even bigger influence on the UK economy in the coming years.