The FSB recently published a report assessing fintech market developments and their potential implications for global financial stability. The report focuses on the impact of new entrants into the financial services space, including bigtech firms and third-party data service providers, which could materially alter the universe of financial services providers. The report highlights, among other concerns, the following:
- Heightened competition between incumbent financial institutions and fintech firms could lead to additional risk taking among incumbents in order to maintain margins;
- The relationship between incumbent financial institutions and fintech firms appears to be “largely complementary and cooperative in nature,” but the profitability of banks and other institutions may be negatively affected in the future;
- The competitive impact of bigtech may be greater than that of fintech firms because bigtech firms typically have large, established customer networks and enjoy name recognition and trust;
- Bigtech firms enjoy the competitive advantage of proprietary customer data from non-financial services, such as social media, to provide financial services; and
- While reliance by financial institutions on third-party data service providers (e.g., data provision, cloud storage and analytics, and physical connectivity) is low, the potential for much higher reliance and the high degree of concentration among service providers, could create the potential for an operational failure, cyber incident, or insolvency impacting the ability of multiple financial institutions to provide services at the same time.
Finally, as the market for fintech, bigtech, and third-party servicers continues to grow and change, the report highlights the importance of continued monitoring of these developments and their financial stability implications.