While currently the speed of FinTech development is extremely high, financial institutions view it as its most serious rival. But is it really so? Or maybe being afraid of this sector they just don’t notice another, even a more significant threat?
The recent research has revealed that well-established tech companies (BigTech) potentially could have a stronger impact on the profitability of financial institutions.
BigTech and FinTech Monitoring
Having conducted a monitoring of the influence that BigTech companies and FinTech startups may have on the work of banks and traditional financial institutions, the Financial Stability Board has made a conclusion that the first-mentioned group of entities may be much more powerful in this aspect.
The Financial Stability Board (FSB) is established with a view coordinate at the international level the work of financial authorities and standard-setting bodies to ensure effective regulatory, supervisory and other financial sector policies. That’s why one of its tasks is to analyze the current state of the industry and try to foresee what challenges it can face with in the future.
Though the policy-making body positively welcomes the improvements that FinTech startups bring to the market and how their solutions help to enhance customer experience, its experts are preoccupied with the fact that they could alter the landscape of the financial services sphere.
The experts noted:
“Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. 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.”
Influence of Financial Innovations
As it was revealed in the result of FSB analysis, there can be various ways in which new developments in the sphere of financial services can influence the market structure.
Among the channels of influence, researches name the establishment of firms that offer bank-like services such as FinTech credit or payments; the emergence of BigTech with established networks and accumulated big data; the entrance of third parties that offer high-quality financial services of great importance.
All these factors may pose a threat for banks that traditionally used to be major players of the market and needed to compete only with each other.
What It Can Mean
Though the FSB considers the relationship between financial institutions and FinTech firms to be rather complementary and cooperative in their nature, BigTech sector poses a serious threat that shouldn’t be ignored.
BigTech’s impact on financial institutions may be much more serious if compared with the impact that has FinTech. And it is quite explicable by the fact that BigTech usually have well-developed wide customer networks and their names are quite recognizable.
All in all, in such situation what the banks should do is just to be attentive to the financial innovations and not deny their power as they really have it.