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2021 | OriginalPaper | Buchkapitel

11. Conclusion: Fintech—A Perfect Day or Walk on the Wild Side?

verfasst von : Jonathan Williams

Erschienen in: Disruptive Technology in Banking and Finance

Verlag: Springer International Publishing

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Abstract

This chapter examines the light and dark sides of fintech through the lens of the supranational agencies responsible for monitoring the impact of developments in market structure on the stability of the global financial system. While fintech is fast growing and offers opportunities to enhance quality of financial services, improve customer satisfaction, increase financial inclusion, support economic growth and welfare gains, the potential exists for known and new risks to emerge and threaten financial stability, economic growth, and social welfare. This chapter discusses how fintech is challenging incumbent financial institutions and identifies benefits and risks associated with the democratisation of financial services. Assessing the effect of fintech on market structures is rendered difficult by a paucity of established data; therefore, the second part of this chapter syntheses relevant data from various sources with predictions from theoretical models alongside empirical and survey evidence to shed light on how markets are evolving and participants are behaving.

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Vorheriges Kapitel Bigger Fish to Fry: FinTech and the Digital Transformation of Financial Services

See https://www.weforum.org/focus/fourth-industrial-revolution.

National governments like the UK government are devising and implementing industrial strategies that place innovation at the centre and are reshaping regulation in ways that support innovation. https://www.gov.uk/government/publications/regulation-for-the-fourth-industrial-revolution/regulation-for-the-fourth-industrial-revolution.

See Ehrentraud et al. (2020) for an insightful cross-border overview of policy responses to fintech.

The core functions of financial intermediation can reduce financial frictions, for instance, information asymmetries, incomplete markets, and negative externalities. Frictions could be related to misaligned incentives, network effects or behavioural distortions (FSB, 2017).

Digital finance is expected to allow firms to scale up to reduce costs and widen access at greater speed, accountability, and efficiency. Greater financial inclusion could benefit underserved and unbanked customers both in advanced economies and emerging market developing economies (EMDEs).

Micro-financial risks include credit risk, leverage, liquidity risk (run risk), maturity mismatch (rollover risk, price risk), operational risks including cyber risk and legal risk. Macro-financial risks include non-sustainable credit growth, greater interconnectedness and correlation, incentives for excessive risk-taking, procyclicality, contagion and systemic importance (FSB, 2017).

Established in April 2009, the FSB is the successor to the Financial Stability Forum (founded 1999). It was accompanied by expanding the G7 to the G20 countries. In spring 2021, the FSB has 24 member countries alongside international organisations (including the International Monetary Fund (IMF), World Bank, Organisation for Cooperation and Economic Development (OECD), European Commission and Central Bank (EC and ECB), Bank for International Settlements (BIS), and SSBs. Hosted at the BIS in Switzerland, the FSB plays a key role in promoting the reform of international financial regulation and supervision.

Letter dated 19 July 2016 from FSB chair, Mark Carney, to G20 Finance Ministers and Central Bank Governors.

See footnote 2.

This constitutes a funding cost subsidy for banks. Petralia et al. (2019) report estimates of this subsidy which range from 15 to 250 basis points. Grimaldi et al. (2019) estimate the subsidy for Swedish banks and find it has fallen from a height of 250 bp in 2009 to 25 bp in autumn 2018.

Proprietary information is a source of market power for banks that customers value and willingly pay for via higher interest rates and/or fees, say, on loan commitments. Imperfect information and weakly contestable markets can lead to credit rationing (Stiglitz & Weiss, 1981) to the detriment of financial inclusion.

In their taxonomies, Thakor (2020) and the FSB (2017) include insurance as a fourth product.

Degryse et al. (2019) provide an excellent review of competition in banking.

Operational risks generally arise from information systems, human error, managerial competencies, and external shocks.

The World Bank/CCAF surveyed 118 central banks and other regulatory financial bodies from 114 jurisdictions between June and August 2020. Two-thirds of respondents reside in EMDEs.

CCAF et al. surveyed 1385 fintech firms operating in 169 jurisdictions between 15 June and 18 August 2020.

Consumer awareness of “invented” fintech services can be extremely high. For instance, 89% of consumers are aware of the existence of in-store mobile phone payment platforms, and 82% aware of P2Ppayment systems and non-bank money transfers (EY, 2019).

EY (2019) constructs the adoption index from survey evidence obtained from 27,000 customers in 27 markets.

Flögel and Beckamp (2020) confirm the importance of soft information in reducing information problems and enhancing the screening and monitoring of loans to SMEs by regional savings banks in Germany. A scenario in which fintechlenders displace regional savings banks in the SME loans market is hypothesised to result in lower access to credit.

Banks increased IT expenditure by 4% per annum over 2016–2019. However, 50% of customers did not receive an integrated banking experience; 60% could not make direct banking payments on different platforms; 58% could not access all accounts from a single platform. The abandonment rate of UK banks reached 56% in 2018 from 40% in 2016 (Capgemini, 2020).

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Titel: Conclusion: Fintech—A Perfect Day or Walk on the Wild Side?
verfasst von: Jonathan Williams
Verlag: Springer International Publishing
Buch: Disruptive Technology in Banking and Finance
Print ISBN: 978-3-030-81834-0

Electronic ISBN: 978-3-030-81835-7

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-81835-7_11