Competition from large, established technology companies (BigTech) and financial technology (FinTech) could put pressure on the profitability of financial institutions and lead them to take on more risks to protect their margins. As part of its ongoing monitoring of BigTech and FinTech influence on financial institutions, the Financial Stability Board (FSB), today published “FinTech and market structure in financial services: Market developments and potential financial stability implications.” In analyzing the advantages and threats posed by rising technological innovation in the financial sector, a cadre of researchers from all over the world found that a more efficient and resilient financial system could develop due to BigTech and Fintech causing more competition and diversity in lending, payments, insurance, trading, and other areas of financial services. However, if financial institutions have a hard time with this competition, they could increase their credit and market risk exposures in order to remain profitable; taking on more risks without good risk management and high levels of capital, could put global financial stability in peril. More attention is needed from regulators and analysts precisely because BigTech and FinTech might affect financial stability by changing the market structure in financial services. As used in the FSB’s report, “market structure refers to the interrelation of companies in a market that impacts their behavior and their ability to make profits.”
