BBVA Research chief economist of Financial Systems and Regulation Santiago Fernández de Lis said on Wednesday that fintechs are unbundling the banking business and the challenge for financial institutions is to rebundle.
Fernández de Lis made the statement as part of his participation in the International Monetary Fund seminar “Fintech and the Transformation of Financial Services.” The seminar was held as part of the organization’s Spring Meetings, with panelists that included industry pioneers and financial sector experts, academics, lawyers and national regulators.
Fernández de Lis during his speech - IMF
Panelists were asked to make arguments for or refute four statements about the nature of fintech. Fernández de Lis, along with Long Chen from Ant Financial and Chris Church from Digital Asset, were asked to respond to the idea that fintech will make banks, particularly large universal banks, obsolete and redundant. Fernández de Lis said that he didn’t believe it was a banks-versus-fintech scenario, but rather that there would be a large number of financial intermediaries, leading to more competition and also more partnership.
“We are going to see hybrid models, including partnerships between banks and fintechs and other technology players,” he said.
Acknowledging the advantages of fintech players -- digital expertise, singular focus, new technology systems instead of outdated legacy ones -- Fernández de Lis pointed out that banks also have specific advantages, including deep customer relationships developed over time, a wide product set and ability to meet the entirety of a client’s financial needs. He said banks that can innovate in partnership with fintechs will be better positioned to compete in the coming years.
“The role of banks has been questioned for many good reasons after the crisis,” he said. “But if properly regulated, and with a sound business model, banks are still the most efficient way to channel saving and investing, provided they are able to adopt the technologies to transform themselves.”
The arguments put forth by Fernández de Lis, Chen and Church were persuasive, with 82 percent of the audience landing on the same side of the arguments in a vote taken at the conclusion of the panel.
Other propositions discussed as part of the panel included the following:
Artificial Intelligence and Machine Learning will bring fundamental changes to the way financial services are provided in the next 3-5 years, but Distribution Ledger Technology will not.
Fintech will endanger financial stability, in particular by making markets more volatile due to algorithmic trading and correlated position-taking.
Fintech will help rather than hinder financial regulation, including anti-money laundering/combating the financing of terrorism (AML/CFT) efforts.
The full list of panelists included:
Jeremy Allaire, Chief Executive Officer of Circle
Chris Church, Chief Business Development Officer of Digital Asset
Jill Carlson, Market Strategy Lead at Chain
Long Chen, Chief Strategy Officer of Ant Financial Services
Greg Medcraft, Chairman of Australian Securities and Investments Commission
Carolyn Wilkins, Senior Deputy Governor at the Bank of Canada
Ryan Zagone, Head of Regulatory Relations at Ripple
Patrick Murck, Fellow at the Harvard Berkman Klein Center
Marco Santori, Partner at Cooley LLP
Alex Tapscott, Chief Executive Officer of Northwest Passage Ventures
Bradley J. Wiskirchen, Chief Executive Officer of Kount
Pictures from IFM