On 14 February 2019, the Financial Stability Board (FSB) published a report on FinTech and market structure in financial services.

The FSB defines FinTech as technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on the provision of financial services.

The report considers changes in market structure in financial services due to technological innovation, and explores the potential impacts of these developments on financial stability. Key elements of market structure for the purpose of the paper are concentration (the extent to which the industry is dominated by a small number of large firms), contestability (the extent to which the threat of new entrants leads to behaviour that resembles a more competitive market), and composition (the characteristics of market participants).

Some key considerations from the FSB’s analysis of the link between technological innovation and market structure include:

  • to date, the relationship between incumbent financial institutions and FinTech firms appears to be largely complementary and cooperative in nature;
  • the competitive impact of BigTech (large, established technology companies) may be greater than that of FinTech firms. BigTech firms typically have large, established customer networks and enjoy name recognition and trust; and
  • reliance by financial institutions on third-party data service providers (e.g. data provisions, cloud storage and analytics, and physical connectivity) for core operations is estimated to be low at present. However, this warrants ongoing attention from authorities.