On August 31st, 2017, The Basel Committee on Banking Supervision (BCBS) released a consultative document on potential fintech implications for banks and its supervisors in the Financial Services sector.
The paper explains how innovative financial technologies disrupt the financial sector, specifically in the banking industries. BCBS assesses the impact of fintech products and services with the help of five ‘forward-looking’ scenarios:
- The better bank: In this scenario, incumbent banks digitalise and modernise their current business models to retain customer relationships and their leverage to enable innovative technologies.
- The new bank: Incumbents are replaced by banks driven by innovative technologies because they cannot keep up with the disruptive power of finetchs.
- The distributed bank: Banks in the financial services fragmentise among fintech firms and banks. The only way for them to prosper is to carve out a specific niche.
- The relegated bank: Incumbent banks become commoditised service providers and customer relationships are owned by fintech and bigtech companies who function as intermediaries.
- The disintermediated bank: Banks have become irrelevant as customers directly interact with individual financial services providers.
The paper argues that fintechs are going to stir up the financial sphere, which is why rapid adoption that enable fintech technologies need to be developed and implemented by incumbent banks.
Standards and supervisory activities imposed by banks should meet all necessary expectations and should be adapted according to prudential standards. In line with these standards, BCBS set out 10 key observations and related recommendations on supervisory issues.
The Committee welcomes feedback on the content of the paper which is currently in its review phase. All comments on the proposal need to be submitted before October 31th 2017.
The original document can be found here.