Abstract
The rise of financial technology (fintech) driven business models in banking poses a challenge for financial regulators. While the positive effects on the banking sector in terms of greater diversity and competition are generally recognized and encouraged by regulators, the nature of fintech business models may increase the risk of financial instability. Regulators are exploring ways to resolve this dilemma. The paper in hand makes a contribution to the literature by providing a framework for resolving the dilemma that is evaluated in the context of the regulatory response to the rise of fintech credit in the Netherlands. The semi-structured interviews which we conducted with four senior Dutch regulators resulted in three areas that–from their perspective–required urgent action: fintech credit companies need to lower the risk of overlending, increase pricing transparency, and improve lending standards. These findings were confirmed by the results of they survey among fintech credit clients. The current regulatory response to the rise of fintech in banking in the Netherlands provides an interesting case study that delineates the features of the future regulation of fintech in banking.
Highlights
Journal of Risk and FinancialThe Financial Stability Board (FSB 2017a) defines fintech as: “technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions, and the provision of financial services” which has been adopted by the Basel Committee on Banking Supervision (BCBS 2018, p. 8) since: “this broad definition is considered useful by the BCBS in light of the current fluidity of fintech developments”.In the past, technologically enabled financial innovation such as the introduction of Automated Teller Machines, electronic payment systems and online banking have significantly changed the manner in which banking services are provided
The percentage of respondents that partially agree with the statements “I require an indication of how long the processing of my application will take ”, “I require that the fintech credit companies offer me the optimal solution to my financial situation”, “I require insight in risk management used by the fintech credit company”, and “I require a complete indication of documentation that I need to submit with my application” of, respectively, 67%, 68%, 66% and 66%, is above this average value of 62%
The semi-structured interviews which we conducted with four senior Dutch regulators resulted in three areas that—from their perspective—required urgent action: fintech credit companies need to lower the risk of overlending, increase pricing transparency, and improve lending standards
Summary
The Financial Stability Board (FSB 2017a) defines fintech as: “technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions, and the provision of financial services” which has been adopted by the Basel Committee on Banking Supervision (BCBS 2018, p. 8) since: “this broad definition is considered useful by the BCBS in light of the current fluidity of fintech developments”. The widespread adoption of these innovations did not, result in non-bank market entrants gaining significant market share in the banking industry (Dermine 2017) This changed with the rise of fintech entrants in the banking market using the most recently developed technology to provide financial services: big data analytics and machine learning. The top three markets in terms of predominance of extending fintech credit to consumers are the United States, Germany and New Zealand (Claessens et al 2018) This focus on this paper is on fintech credit provision for SMEs. The market entry of fintech credit companies can on the one hand generate positive effects of better value propositions as the result of business model disruption, but can have important negative effects such as market instability and market integrity issues.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
