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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.
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.