FSB: Banks should be worried about BigTech not fintech

FSB: Banks should be worried about BigTech not fintech

The Financial Stability Board has warned that banks have more to fear from the competitive impact of Big Tech firms in financial services than the disruptive threat posed by cherry-picking fintech startups.

The policy-making body has been actively monitoring fintech market developments and their potential implications for financial stability.

While welcoming the improvements in service quality promised by competitive new entrants, the FSB believes that a disruptive shake up in the market "could materially alter the universe of financial services providers".

"Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system," the report states. "However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies, for example in cloud computing services."

While the FSB views the relationship between incumbent financial institutions and fintech firms as largely complementary and cooperative in nature, the threat posed by Big Tech cannot be ignored.

Equally, reliance by financial institutions on third party data service providers in cloud storage and physical connectivity is another area which merits further research.

"As fintech firms, BigTech firms, and the markets for third-party services continue to develop, it will be important to continue monitoring these developments and their financial stability implications," states the body. "Further efforts on third-party dependencies are ongoing in the standard-setting bodies. The FSB Financial Innovation Network (FIN) is further exploring the market for third-party services for financial institutions, including how they manage lock-in risk and cross-border issues. Moreover, FIN is looking into the activities of BigTech in finance, including cross-border activities."
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Comments: (4)

Nick Ogden
Nick Ogden - ClearBank - London 15 February, 2019, 10:39Be the first to give this comment the thumbs up 0 likes

Customer service level is a rare word in the world of banking, however, it is the #1 consideration if you are Big Tech or Fintech. Add to that the ability for Big Tech and Fintech to innovate and copy the marketing techniques of fast moving consumer goods (FMCG), without a historic bank governance layer, and the challenge, speed to market and opportunity is clear.

Cloud,  is an area of active discussion and the various cloud providers have different approaches to the market. I believe that Microsoft currently holds the cybersecurity lead, using it as a key value-added differentiator, which becomes clear during a procurement process. I shared this point with the Basel Committee on Banking Standards during a meeting at the Bank of England. This is also an example of how Big Tech firms are also responding and leading industry-wide challenges, in the absence of market collaboration from the historic incumbents.  

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 February, 2019, 12:41Be the first to give this comment the thumbs up 0 likes

BigTech has posed a threat to the banking industry for a long time. Still, the mighty Apple put banks at the center of its Apple Pay initiative and the $5 bn loans offered by Amazon to sellers on its platform is probably lower than one hour of loan volumes of the banking industry. IMO, the real question is, how keen are Amazon, Apple, Microsoft, and other BigTech companies on entering banking amidst regulation, lower enterprise valuation and other challenges faced by the banking industry? I'm not sure if the answer to that question has changed too much over the years. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 February, 2019, 12:45Be the first to give this comment the thumbs up 0 likes

On a side note, I'm happy to find yet another confirmation of my prediction that Banks Have Nothing To Fear From Fintech.

Jonathan Duffy
Jonathan Duffy - Netclearance Europe - Guildford 18 February, 2019, 13:48Be the first to give this comment the thumbs up 0 likes

I would think Apple clearly have banking in their sights, and with Google recently acquiring a banking licence in Europe and AliPay doing the same this month, the writing is on the wall.