BIS published a working paper that studies the fintech developments to identify drivers of fintech adoption worldwide. The analysis showed that fintech adoption is higher where there is unmet demand for financial services and where regulation is accommodative. While fintech innovations can sometimes overcome specific market failures, fintech activities will remain subject to the risks traditionally present in finance, such as liquidity mismatches, speculative bubbles, interconnectedness in the financial system and, potentially, systemic importance and moral hazard with large intermediaries. As such, there is a need for public policy intervention in the form of adequate and proportionate regulation and supervision.
This paper looks at how agents in different economies around the world are adopting fintech. Fintech services are expanding in payments, credit, wealth management and insurance, in both advanced and emerging market and developing economies. Yet the scale of adoption differs widely. The paper seeks to explain why fintech innovations are more widely adopted in some economies and markets, but not in others. The available evidence shows that unmet demand is a strong driver in emerging market and developing economies and in under-served market segments. The high cost of finance and high banking sector mark-ups are also important.
The paper highlights that a number of studies show how the regulatory environment can aid or hinder fintech adoption. Countries with a stronger rule of law, quality of regulation, control of corruption, ease of entry, and higher profitability of extant intermediaries have higher volumes of alternative finance, including fintech credit. However, countries with less stringent bank regulation, as measured by a World Bank index, have higher investment in fintech. These countries may also be more permissive toward new entrants, in addition to the findings showing higher fintech credit volumes for these countries. Countries in which regulation was judged in surveys to be more adequate (rather than excessive or inadequate) had higher alternative finance volumes.
Regulatory factors can play a role, but in general, regulatory arbitrage does not seem to be a primary driver of fintech adoption to date, at least at an aggregate level. There may be specific activities for which regulatory arbitrage is a factor. Finally, younger cohorts may be driving adoption in many economies, but not universally. Population aging and changes in trust in technology and fintech may have important effects, shaping not just the extent but the future direction of fintech adoption. The available evidence also supports the idea that fintech adoption may enhance cross-border financial integration.
Keywords: International, Banking, Insurance, Fintech, Insurtech, Bigtech, Regulatory Arbitrage, Fintech Regulation, BIS
Previous ArticleDNB Releases Multiple Reporting Updates for Banks
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”