FinTech and market structure in financial services: Market developments and potential financial stability implications

Executive summary
Technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients. At the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers.1 This could in turn affect the degree of concentration and contestability in financial services, with both potential benefits and risks for financial stability.
Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. Notwithstanding these clear benefits to financial stability, heightened competition could also put pressure on financial institutions’ profitability. This could lead to additional risk taking among incumbents in order to maintain margins. Moreover, there could be new implications for financial stability from BigTech in finance and greater third-party dependencies.
While markets have developed differently across jurisdictions, there are commonalities that warrant international discussion. While these commonalities may be global in scope, their impact on each jurisdiction depends on the state of development of the financial services industry and the regulatory environment. Some key considerations from the FSB’s analysis of the link between technological innovation and market structure are the following:

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