The German Banking Industry Committee (GBIC) has commented the proposals put forward in the discussion paper on the EBA’s approach to financial technology and answered the specific questions the EBA detailed in such paper. The European Banking Authority (EBA) published a Discussion Paper on its approach to financial technology (FinTech) on 4 August 2017. The EBA set out in the Discussion Paper the results of the first EU-wide FinTech mapping exercise and its proposals for future work on FinTech.

Generally, the GBIC supports the assessment of potential regulatory gaps through regulatory initiatives. The core principles for regulating FinTechs should be (i) technological neutrality; (ii) proportionality; and (iii) market integrity – with priority on the latter.

As regards proportionality, any regulation or regulatory initiatives (such as sandboxing) should keep in mind the need for proper risk management, customer and data protection, as well as standards governing cyber-security and AML/CFT.

The GBIC welcomes the introduction of a support tool. However, sandboxes or hubs must safeguard investor protection from the very first euro invested, regardless of the regulatory regime a firm is subject to. Applying existing requirements to new entrants – irrespective of business model, type of entity, or type of license – should ensure that the risks of a new entrant’s business activities are fully addressed and monitored. The idea of ‘same service, same rules’ should be applied to secure consistent standards and fair competition.

The GBIC stresses the importance of data protection, since the use of data by some BigTechs (Google, Amazon, Alibaba) which are not fully and strictly regulated concerning data protection, such as banks. It lists the following specific opportunities and threats of FinTech:

Opportunities:

1. Cooperate with FinTechs to combine banking knowledge with FinTechs’ innovative power and speed, to offer innovative customer-centric products and services.
2. New opportunities to reach customers through switching services and comparison platforms. Furthermore, through this increasing transparency, customers are becoming more active in looking for the most suitable solutions. They are willing to try out new things.
3. Building a common Cloud Ecosystem for customers and banks.
4. Reduction of (transaction) costs
5. Increase transaction speed (instant transactions) – which, however, can also evolve into a threat for the system, as described in Q20.
6. Global reach
7. Enhanced transparency
8. Improved customer experience

Threats:

1. A lack of regulatory direction is the biggest threat, since FinTechs and BigTechs are able to use customer data differently from banks – this creates an uneven playing field, which is a disadvantageous position that imposes enormous restrictions upon banks. Multiple FinTechs with niche offerings will cooperate via an open API banking approach and may thereby provide superior services to customers. At the same time, thanks to partly lower regulatory standards, they may no longer need to cooperate with traditional credit providers.
2. Banks may end up merely hosting customer details, providing just e-identities.
3. Over-regulation
4. Investments in the basic infrastructure must continue to pay off for banks. Some competitors have built their business models on the fact that providers within the value creation chain offer services used by downstream players, without the possibility of pricing such services. This severely restricts incentives for modernising basic infrastructure. One example for such a scenario is the most recently amended Payment Services Directive (PSD 2), pursuant to which account data required to initiate a transaction, or to provide services, must be provided to third parties.
5. Monopolisation (winner takes all)
6. Cyber-crime
7. Development costs

View GBIC’s comments on EBA’s approach on FinTech.

View also GBIC’s response to the Basel Committee on Banking Supervision’s consultative document on the implications of FinTech developments.

(The German Banking Industry Committee is the joint committee operated by the central associations of the German banking industry. These associations are the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR), for the cooperative banks, the Bundesverband deutscher Banken (BdB), for the private commercial banks, the Bundesverband Öffentlicher Banken Deutschlands (VÖB), for the public banks, the Deutscher Sparkassen- und Giroverband (DSGV), for the savings banks finance group, and the Verband deutscher Pfandbriefbanken (vdp), for the Pfandbrief banks. Collectively, they represent approximately 1,700 banks.)