Introduction
This report provides information on the financial services sectors in the UK and the US focusing on banking. The financial services field contributed to 8.59% of the total UK economic output. The sector is concentrated in London, where 50% of the sector’s output was derived (Ozili, 2020). According to OECD, the UK financial services was ranked number three due to national economic productivity. On the other end, finance and insurance depicted about 7.5% of US gross domestic product (GDP), which is 1.5 trillion dollars (Bensley et al., 2020). Same as the UK, the US financial services sector has translated into a substantial economic factor, which has seen the creation of jobs in the two countries. The US banking sector is dominated by JPMorgan Chase, Wells Fargo, Citigroup, and others (Norrestad, 2022). In terms of market capitalization, the four banks are leading globally. All the banks in the US are insured by the Federal Deposit Insurance Corporation (FDIC). In the UK, banks such as Barclays, Deutsche Bank, and Santander UK, have led to the creation of more than 1 million jobs across the country (Norrestad, 2022). Therefore, the are many similarities and differences in the banking sector in the two countries.
Analysis: Comparing Banking Sector in US and UK
Key Similarities
The US and UK banking sectors have many similar aspects. First, the two countries have economies characterized by capital markets financial systems. It means that operations are not bank-driven rather capital-driven (Ozili, 2020). In the UK, for instance, banks do not own companies that monitor stock and bonds for external banking. On the other side, the US also has banks participating in strategic decisions without stock ownership and control, which comprises bankers who are on companies’ boards. Through capital markets, both US and UK have evolved in terms of banking models with new and innovative elements that have emerged as the key metrics that make the banking sector stable (Norrestad, 2022). For instance, the UK has seen a trend in digital integration of the banking landscape that brought a wave that calls for competitive advantage.
Due to the capital markets and the nature of services, it is possible to have an agility count in the banking system that guarantees the sustainability of any business. The reality of banking in the UK has seen several trends that have dominated the market for a long while (Rhanoui & Belkhoutout, 2018). For example, there is the acceleration of online banking, which results from the digital integration of the banking system in the country (Ozili, 2020). The US has a new operating model in banking called Net Interest Margin (NIM) operating models. By basing banking operations on capital markets, the two countries’ banking sector has seen advancement in data and analytics due to the use of artificial intelligence in integrating capital elements.
Second, the two nations have similarities in historical experiences in terms of segmentation and specialization of financial services. For example, in the UK, there is increased permeability that has diversified many banking domains. From the same perspective, the US has experienced a wide cartel-like system that evolves from the segmented aspect in domestic and foreign banks (Norrestad, 2022). Through specialization, both the UK and the US have seen an improved new technology powered by microservices architecture. It is common to find baking systems in the US being deployed into microunits that can function without a simultaneous barrier. For example, the bancassurance elements in most US banks have a segmented element that allows room for major changes based on what other institutions are offering (Rhanoui & Belkhoutout, 2018). Therefore, the DevOps useful in integrating this background functionalism in baking has enabled efficacy when developing insurance reports based on premium and policy rate.
Third, banking systems in both US and UK have seen a similar feature in terms of new distribution channels in the banking landscape. Through the digital power in the economy, banks have evaluated the branch networks and checked the fundamental physical outlets that help generate revenues. For example, the Barclays Bank in the UK recently changed the structural aspect of banking from sale points to service centers (Torrente, 2022). That move probed other banks to follow suit hence, changing the products and services merchandising factors into a new set of portfolios governed by a customer-centric value chain.
On a similar note, retail banking in the US has experienced shifts in the way customers have significant power in the functions of banking operations. The integrated vision of distribution in the US has led to a 24% increase in digital banking and 13% for other domains (Rhanoui & Belkhoutout, 2018). Therefore, the channeling bodies in a bank have been anchored majorly on packed distribution strategies that have responded and accelerated from customer expectations. For example, the US human-centered virtual channels have led to 65% adoption of digital sales and services that have overweighed the physical channeling that had traditionally taken the notable margin in banking (Ozili, 2020). Thus, from the above factors, the US and UK have similar models for the banking sector.
Key Differences
Despite a raft of similarities between US and UK banking systems, there are notable differences to mention in this report. The first difference is on banking structure whereby most of the US’s banks are chartered and regulated by the state and federal levels. More than 80% of commercial banks have interstate banking laws governing their operations (Rhanoui & Belkhoutout, 2018). This aspect is different in the UK as the banking laws usually focus on the national institutionalization of banking, not on regional perspectives. The element has led to the UK banking industry being concentrated in other industrial areas apart from banking only, bringing another difference compared to the US, which has low concentration into banking industries.
A key difference between the US and UK banking sectors is banking powers. Banks in the UK are allowed to engage in securities and insurance matters. However, the US seems to be restricted by the traditional banking laws that need a comprehensive review whenever a bank wants to develop in other areas (Torrente, 2022). In the US, securities and insurance powers in banking have restricted offers, more so for nonbank subsidiaries. For example, the Gramm-Leach-Bliley Act gives a detailed financial requirement for a banking company to engage in securities and insurance tasks domestically or internationally (Norrestad, 2022). It is also important to mention that investments by industrial firms in different in US and UK banking sectors. US banks face a limited power to invest in industrial firms compared to the UK, which gives the banks the liberty to freely undertake these activities.
Due to the challenge, the US banking system seems to be outweighed by the UK’s in terms of competitive trends. The regulatory laws and the nature of customer experience can show this pattern for the two countries. There is still a difference in customer relations in the two countries’ banking systems (Bensley et al., 2020). The instant way of sending money is more advanced in the UK than in the US. For example, a customer can send their friend a code to withdraw money at a given bank or get cash from ATM without inserting a card. In the US, there are many authentication procedures and checks required for third parties to transact (Rhanoui & Belkhoutout, 2018). Lastly, the US banking sector has advanced its cybersecurity by having automated phishing detectors for all stakeholders in a bank. Though the same can apply in the UK, it requires a key-in value for network security, which may be complex, hence necessitating cybercrime.
Conclusion
From the report, the following key findings are evident. The US and UK banking sectors have capital markets as the key aspect in operations and not bank-driven initiatives. That means that banks do not have the power to external companies that oversee their stock. The other key similarity is that the banking systems in the two countries are highly-segmented and specialized. Because of that reason, many domains have been developed by the use of digital technology, which is also applicable significantly in the two countries. Also, the banking sectors in the UK and US have changed distribution channels centered on serving more than selling. The key differences include banking power, structure, and investment in industrial firms. Therefore, the UK has defeated the US in terms of competitive advantage in the industry due to the restrictions the US has concerning the structure, investment, and power that banking firms should have.
References
Bensley, E., Khon, S., Tan, D., & Tarapolevala, Z. (2020). Breaking away from the pack in the next normal of retail banking distribution. McKinsey & Company. Web.
Norrestad, F. (2022). Topic: Banking industry in the U.S. Statista. Web.
Ozili, P. (2020). Comparing digital finance in the UK, US, India, and Nigeria. Financial Internet Quarterly, 16(4), 1-11. Web.
Rhanoui, S., & Belkhoutout, K. (2018). Operational risk in both conventional and Islamic banking perceptions: Differences and similarities. European Scientific Journal, ESJ, 14(13), 110. Web.
Torrente, P. (2022). Banking in the new reality: the US Helping banks thrive in uncertain times. KPMG. Web.