Fintech hyped
In the report, regulators assessed the potential implications of fintech technology on traditional banking business models. The likely impacts of online transactions, mobile payments and crowdfunding were investigated. These new forms of finance are becoming more popular, with proponents claiming they will overhaul the industry and place significant pressure on traditional lenders.
The report takes a conservative approach to fintech’s role in the market. It reflects that the technology is being “hyped” and that fintech hasn’t yet had a major impact on the operations of banks. While there are now a significant number of products and providers, transaction volumes and overall adoption remain low compared to the global financial services sector.
The regulators do believe fintech will have an ongoing role in finance though. They see it as another evolution in the technology used by the banking sector. As with previous technological changes, fintech will create a period of market turbulence before a new balance is found.
Collaboration with banks
The trend is expected to make financial services more accessible and spur more rapid innovation. However, it’s unlikely fintech providers will entirely usurp banks to become the face of the industry. Instead, fintech firms will work with banks to develop new products that better match the demands of customers.
“The emergence of fintech is only the latest wave of innovation to affect the banking industry,” wrote the regulators in their report. “While banks have undergone various technology-enabled innovation phases before, fintech has the potential to lower barriers of entry to the financial services market and elevate the role of data as a key commodity, and drive the emergence of new business models.”
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As fintech becomes more commonplace, the regulators expect that new rules may be required to govern their operations. With the industry still in the hype phase, they’re currently unprepared to take action in an attempt to keep financial centres attractive to new start-ups. Once fintech providers start to work more closely with banks, the resulting shift in responsibilities and risks could necessitate rules to address fintech’s “disruptive” potential.
The report also notes that regulators themselves should be assessing whether they’re still effective as new technologies emerge. Staff at regulators should be trained to ensure they’re fully aware of the impact of fintech and digital disruption. By improving education and approaching fintech as a way to improve financial services, regulators and banks could co-exist with new technological services.
