EBA Reports Assess Impact of Fintech on Business Models of Banks
EBA, as the first products of its fintech roadmap, published a thematic report on the impact of fintech on incumbent credit institutions' business models and a thematic report on the prudential risks and opportunities arising for institutions from fintech. Both reports fall under the wider context of the newly established EBA FinTech Knowledge Hub.
Report on the impact of fintech on incumbent credit institutions' business models. Based on the observations of EBA, incumbents are categorized into (i) proactive/front-runners, (ii) reactive, and (iii) passive in terms of the level of adoption of innovative technologies and overall engagement with fintech. The report highlights that potential risks may arise both for incumbents not able to react adequately and timely, remaining passive observers, but also for aggressive front-runners that alter their business models without a clear strategic objective in mind, backed by appropriate governance, operational, and technical changes. The report concurs that currently the predominant type of relationship between incumbents and fintech is partnership with fintech firms, which is considered a "win-win" situation. The report sets out five factors that might significantly affect incumbents' business models from a sustainability perspective:
- Digitalization/innovation strategies pursued to keep up with the fast-changing environment
- Challenges arising from legacy Information and Communication Technology (ICT) systems
- Operational capacity to implement the necessary changes
- Concerns over retaining and attracting staff
- Increasing risk of competition from peers and other entities
Report on the prudential risks and opportunities arising for institutions from fintech. The report assesses seven use cases, under which new technologies are applied or considered to be applied to the existing financial processes, procedures, and services. The report aims to provide both competent authorities and institutions with useful guidance on such applications. The report found that no significant implementation of sophisticated technologies has been noted yet by institutions, possibly because of security concerns and filtering the hype around fintech. From the prudential risk perspective, there is a growing shift toward operational risk, arising mainly from the accentuation of ICT risks as institutions move toward more technology-based solutions. Dependencies on third-party providers, heightened legal and compliance risks, and negative impact on conduct risk add to the overall increased operational risk. The potential efficiency gains and improved customer experience are the predominant potential opportunities while the changing customer behavior is an important factor triggering institutions' interest toward fintech. The report focuses on micro-prudential aspects, setting out potential prudential risks and opportunities that may arise from each use case:
- Biometric authentication using fingerprint recognition
- Use of robo-advisors for investment advice
- Use of big data and machine learning for credit scoring
- Use of distributed ledger technology and smart contracts for trade finance
- Use of distributed ledger technology to streamline customer due diligence processes
- Mobile wallet with the use of near-field communication
- Outsourcing core banking/payment system to the public cloud
Related Links
- Press Release
- Report on Impact of Fintech on Business Models (PDF)
- Report on Risks and Opportunities from Fintech (PDF)
Keywords: Europe, EU, Banking, Fintech, Fintech Roadmap, Fintech Knowledge Hub, EBA
Related Insights
|
News
IAIS Publishes Drafts of Revised ICP 8, ICP 15, ICP 16, and ICP 20IAIS published the drafts of revised Insurance Core Principles on Public Disclosure (ICP 20), Investments (ICP 15), Enterprise Risk Management for Solvency Purposes (ICP 16), and Risk Management and Internal Controls (ICP 8), along with a revised draft of the glossary on enterprise risk management (ERM).
November 14, 2018
WebPage
Regulatory News
|
|
News
MAS Amends Notice 637 on Capital Adequacy Requirements in SingaporeMAS published the final, revised Notice 637 on the risk-based capital adequacy requirements in Singapore.
November 13, 2018
WebPage
Regulatory News
|
|
News
ESMA Updates Q&A on Implementation of CSD Regulation and MARESMA updated questions and answers (Q&A) documents on the implementation of the Central Securities Depository (CSD) Regulation and Market Abuse Regulation (MAR).
November 12, 2018
WebPage
Regulatory News
|
|
News
FSB Finalizes and Publishes the Cyber LexiconFSB published a cyber lexicon, following the public consultation earlier this year.
November 12, 2018
WebPage
Regulatory News
|
|
News
SRB Updates Liability Data Reporting Template for 2019SRB published version 2.7.1 of the Liability Data Reporting (LDR) Template.
November 12, 2018
WebPage
Regulatory News
|
|
News
ECB to Conduct Comprehensive Assessment of Six Bulgarian BanksECB will undertake a comprehensive assessment of six Bulgarian banks. The exercise, comprising an asset quality review and a stress test, follows Bulgaria’s submission of a request to establish close cooperation with ECB on July 18, 2018.
November 12, 2018
WebPage
Regulatory News
|
|
News
IMF Publishes Reports on the 2018 Article IV Consultation with ChileIMF published its staff report and selected issues report under the 2018 Article IV consultation with Chile.
November 09, 2018
WebPage
Regulatory News
|
|
News
PRA Issues PS27/18 on Implementing the Extension of SM&CR to InsurersPRA published the policy statement PS27/18, which provides feedback to responses to the consultation paper CP20/18, on implementing the extension of the Senior Managers and Certification Regime (SM&CR) to insurers (Part 2).
November 09, 2018
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: First Update for November 2018EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.
November 09, 2018
WebPage
Regulatory News
|
|
News
FED Finalizes the Large Financial Institution Rating SystemFED finalized the new supervisory rating system for Large Financial Institutions (LFIs), to better align with the current supervisory programs and practices for these firms.
November 09, 2018
WebPage
Regulatory News
|
