Banking, FinTech, Big Tech: Emerging challenges for financial policymakers

FinTech and Big Tech firms are both increasingly stepping on banks’ traditional turf. This column introduces the 22nd Geneva Report on the World Economy, which looks at the challenges generated by new technology-enabled entrants to the global banking industry and the public authorities that oversee it. It argues that to respond adequately to the FinTech/Big Tech challenge, authorities will need to raise their game and enter uncharted territories.

By: , , and Date: September 26, 2019 Topic: Finance & Financial Regulation

This article was also published on VoxEU

FinTech (financial technology) firms, generally start-ups that offer a specifically targeted financial service, and Big Techs, globally active technology firms with a relative advantage in digital technology that may add financial services to their range of offerings, are both increasingly – though differentially – stepping on banks’ traditional turf. Currently, financial services are only a small part of Big Tech’s global business. However, given their size and customer reach, Big Techs’ entry into finance has the potential to spark rapid change in the industry. They may even become dominant through their collection of valuable data and their large, established networks (BIS 2019). This has potential wide-spread implications, such as for monetary policy transmission and financial stability (Cœuré 2019), and even the political economy of central banking as we know it (Tucker 2017). The 22nd Geneva Report on the World Economy focuses on the challenges generated by new technology-enabled entrants to the global banking industry and the public authorities that oversee it (Petralia et al. 2019).

Banks have been challenged on their established turf before. In the 19th and 20th centuries, various types of cooperative banks and credit unions grew outside of the traditional banking industry, before being mostly absorbed into the mainstream banking policy framework. More recently, mutual funds have competed with the bank’s deposit-taking function as a safe place to park money.

The disruption of banking services by FinTech and Big Tech offerings is still at too early a stage to know whether it is just as transformational as such past episodes have been, or something more radical. The speed at which they develop new services in line with customer preferences, their ability for hypergrowth and hopping across jurisdictional borders, and in the case of Big Tech, their potential for leveraging massive established networks of users are awe-inspiring.

Even so, some features of banking are remarkably stable. Banking assets remain overwhelmingly concentrated in only a handful of jurisdictions. Traditional banking activities still account for more than two-thirds of total revenues of financial institutions, although some of these activities are now performed by non-banks and profits margins are squeezed by the low rate environment. Banks remain dominant in lending and deposit-taking, even as payments is an increasingly contested space.

While technology and market forces are central to the ongoing disruption, however, they will not be the only or even the main driver of outcomes. Banking is ultimately about money, and money is about public authority – this is why, for centuries, banks have been licensed when they weren’t direct creations of the state. Governments and central banks may be challenged by tech-enabled new entrants, but will not be sidelined by them. The globally coordinated reaction of financial authorities to the Facebook-sponsored Libra initiative demonstrates the point.

But to respond adequately to the FinTech/Big Tech challenge, authorities will also need to raise their game and enter uncharted territories. We identify three main dimensions to the effort, which are relevant to all jurisdictions even as they take highly diverse forms in different places.

  • Financial stability, which refers to the policies that protect the soundness of the financial system and, by implication, of the monetary system itself, is critical to any sustainable retail banking innovation. It is still unclear how new technologies may generate (or indeed mitigate) financial crisis scenarios, but the massive speed and scale associated with them will open new areas for vigilance if not outright regulation.
  • Competition is the aim to promote market success, development and efficiency in markets. Recent EU enforcement actions and ongoing debates in the US illustrate how Big Tech will increasingly force fundamental changes in the framework for competition policy, not to mention cross-border security concerns. Competition policy has often been only selectively applied to the banking sector, but the interaction with tech firms is likely to prompt a rethink.
  • Data rights. Banks have traditionally branded themselves as paragons of discretion about their clients’ operations, but the very notions of data privacy, data ownership, and data value are evolving at a rapid pace. While recent events have brought data privacy and protection to the forefront of policy discussion, the world is still far from global agreement on the most appropriate market or societal mix of data rights and access with respect to financial services policy. The EU General Data Protection Regulation (GDPR) is only a harbinger of public debates and legislation to come on how to protect individuals and legal entities from new risks inherent to the data economy.

For public authorities such as central banks and supervisors, the associated challenges we identify are at least three-fold.

  • First, they must keep pace with technological change – understand it, embrace it in their own organisations, and correspondingly adapt their skillsets and mindsets. Authorities may be faced with the difficult balance between a culture of prudence and attention to detail, which is often essential to delivering on their mandate, and the ability to adapt their frameworks rapidly to a fast-moving environment.
  • Second, they will increasingly have to work collaboratively with their peers across the globe as well as with non-financial peers in areas such as competition and data rights, in order to adequately respond to increased salience of Big Tech in the financial system. Alongside their peers, financial authorities will have to define new modes of cross-border coordination and, in some cases, possibly pooling of their mandates when these cannot be effectively fulfilled at the level of each individual jurisdiction. Perhaps more challenging, financial authorities will have to find ways to work with authorities with whom they may have had little or no interaction, or with entities which simply did not exist previously.  The experience of the last two decades in the EU, where financial authorities have had to gradually accept and internalise the growing role of the European Commission’s state aid control, may give a taste of more frictions and adjustments to come.
  • Third, they may increasingly need to consider institutional experimentation to remain able to oversee firms that evolve fast and hop jurisdictional borders. These could include forms of direct supervision that encompass several (if not necessarily all) jurisdictions at once, based on binding legal arrangements beyond the ‘soft law’ or voluntary cooperation that prevails in existing international financial bodies. Here too, the recent EU experience, where supranational supervision has become a reality even though it had long been considered utopian, may provide useful pointers for future initiatives.

All the same, banking sector policy, like digital services, will certainly stop short of complete global uniformity. The terms of debates on financial stability, competition, and data rights, will not converge in the foreseeable future across jurisdictions such as China, Japan, the EU and the US. International initiatives should aim at finding the right balance, preventing unnecessary fragmentation while adapting their tools to the diversity of collective preferences and political systems.



Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event


Recovery and Resolution Planning for Europe’s cross-border banks

This workshop will discuss recovery and resolution plans in the CEE countries

Speakers: Sebastiano Laviola, Alexander Lehmann, Boris Vujčić, Franceso Mauro, Alexander Benkwitz, Roland Mechtler, Sofia Toscano Rico, Krzysztof Broda, Radek Urban and Emil Vonvea Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event


The Great Reversal-Causes and implications of the rising corporate concentration in the US

During this event, Thomas Philippon will present his thesis on market concentration and explain the reasons behind the rising corporate market power in the US.

Speakers: Thomas Philippon, Georgios Petropoulos and Reinhilde Veugelers Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF

Policy Contribution

European Parliament

The next generation of digital currencies: in search of stability

Recent developments have re-opened the debate on the future of money. This Policy Contribution discusses two aspects: the implications of the rise of global private stablecoins, such as Facebook's Libra, and the role that public central bank digital currencies could play.

By: Grégory Claeys and Maria Demertzis Topic: European Parliament, Finance & Financial Regulation, Testimonies Date: December 2, 2019
Read article More on this topic More by this author



How not to spend it

Buying a car, a house or a cryptocurrency has never been easier: with a simple click, digital banking has made financial operations accessible to everyone. But, while Fintech has become widespread, financial literacy does not seem to keep up the pace. This week Maria Demertzis and Nicholas Barrett are joined by Annamaria Lusardi, Denit Trust Endowed Chair of Economics and Accountancy from George Washington University School of Business to discuss financial literacy.

By: The Sound of Economics Topic: Finance & Financial Regulation Date: October 31, 2019
Read about event More on this topic

Past Event

Past Event

Competition policy in the era of AI – the case of Japan and Europe

How can artificial intelligence have a positive impact on the economy? How does AI impact competition policy? How can the EU and Japan become leaders in AI?

Speakers: Eric Badiqué, Grazia Cecere, Taiji Hagiwara, Yuko Kawai, J. Scott Marcus, Noritsugu Nakanishi, Tatsuji Narita, Agata Wierzbowska and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 24, 2019
Read about event More on this topic

Past Event

Past Event

Financial and digital literacy in the age of fintech

How to ensure the safe use of digital payments and other technological innovations in the area of personal finance?

Speakers: Maria Demertzis and Annamaria Lusardi Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 23, 2019
Read about event More on this topic

Past Event

Past Event

Banking disrupted by FinTech and Big Tech

Today banks are facing competition from non-bank firms whose core strategy is based on technological innovation - Big Tech and Fin Tech. What is in store for the future of banking?

Speakers: Teunis Brosens, Rebecca Christie, Sam Taussig and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 9, 2019
Read article More by this author

Blog Post

Questions to the Competition Commissioner-designate

Commissioner Vestager has been given two portfolios; Executive Vice-President for a Europe fit for the Digital Age and Competition Commissioner. While having more than one portfolio may not be new, combining an important policy coordination function and an enforcement function is a novel approach. This raises a number of important questions related to how the objectives of either portfolio can be delivered cleanly.

By: Mathew Heim Topic: Innovation & Competition Policy Date: September 27, 2019
Read article More on this topic

Blog Post

Addressing the EU’s Global Challenges Locally: the EU’s Competition and Antitrust Tightrope

This blog is part of a series following the 2019 Bruegel annual meetings, which brought together nearly 1,000 participants for two days of policy debate and discussion.

By: Rebecca Christie and Mathew Heim Topic: Innovation & Competition Policy Date: September 23, 2019
Read about event

Past Event

Past Event

Climate change and the role of central banks

What connections exist between central banks and climate change, and what are the resulting implications?

Speakers: Emanuele Campiglio, Paul Hiebert, Pierre Monnin, Kjell G. Nyborg, Luiz Awazu Pereira da Silva, Mario Quagliariello, Mattia Romani, Paweł Samecki and Dirk Schoenmaker Topic: Energy & Climate, European Macroeconomics & Governance Location: Narodowy Bank Polski, Świętokrzyska 11/21, 00-919 Warsaw Date: September 16, 2019
Read article Download PDF More on this topic More by this author

Policy Brief

Collective action in a fragmented world

International collective action is in search of a new paradigm. It cannot rely anymore on global binding rules supported by universal institutions. New forms of cooperation have emerged in a number of fields. Europe should equip itself to be an effective player in this new global game. This calls for internal governance reforms.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: September 11, 2019
Read about event

Past Event

Past Event

China-EU investment relations: Exploring competition and industrial policies

This is a closed-door workshop jointly organised by MERICS and Bruegel looking at China-EU investment relations.

Speakers: Miguel Ceballos Barón, Alicia García-Herrero, Mikko Huotari, Yi Huang and Xu Sitao Topic: Finance & Financial Regulation, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 9, 2019
Load more posts