BIS: Sound Practices: implications of fintech developments for banks and supervisors issued by the Basel Committee

19 February 2018

The paper assesses how technology-driven innovation in financial services, or "fintech", may affect the banking industry and the activities of supervisors in the near to medium term.

The paper is based on the analysis of various potential future scenarios and draws on surveys with bank supervisors. Five stylised scenarios describing the potential impact of fintech on banks were identified as part of an industry-wide scenario analysis:

• The better bank: modernisation and digitisation of incumbent players
• The new bank: replacement of incumbents by challenger banks
• The distributed bank: fragmentation of financial services among specialised fintech firms and incumbent banks
• The relegated bank: incumbent banks become commoditised service providers and customer relationships are owned by new intermediaries
• The disintermediated bank: banks have become irrelevant as customers interact directly with individual financial service providers

The paper focuses on three technological developments (big data, distributed ledger technology and cloud computing) and three fintech business models (innovative payment services, lending platforms and neo-banks).

Against this backdrop, current observations suggest that, although the banking industry has undergone multiple innovations in the past, the rapid adoption of enabling technologies and emergence of new business models pose various opportunities and risks to incumbent banks in almost all the banking industry scenarios considered. Banking standards and supervisory expectations should be adaptive to new innovations, while maintaining appropriate prudential standards.

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