1. Technological innovation in the financial sector and
implications for supervision Janko Gorter FIN-FSA Conference
Helsinki, 4 October 2016 1
2. What is FinTech? No common definition but consensus about
key characteristics Organisations combining innovative business
models and technology to enable, enhance and disrupt financial
services Technologically enabled financial innovation that could
result in new business models, applications, processes with an
associated material effect on financial markets and institutions
Computer programs and other technology used to support or enable
banking and financial services The use of technology and innovative
business models in financial services 2 Innovation in financial
services, whether that means new products from new startups, or the
adoption of new approaches by existing players where technology is
the key enabler.
3. Digital disruption: is financial services next to be
overhauled by BigTech companies? 3 N E X T ? Uber, the worlds
largest taxi company, owns no vehicles Facebook, the worlds most
popular media provider, creates no content Alibaba, the worlds most
valuable retailer, has no stock inventory Airbnb, the worlds
largest accomodation provider, owns no real estate Spotify, the
worlds most popular music service, owns no music rights
4. Agenda Dutch FinTech landscape today Scenarios for the
future Actions by supervisors/regulators 4
5. FinTech players Alt. Finance Payments Asset management Data
analytics Cryptocurrency Source: HollandFinTech 5 Insurance
Compliance Personal finance Dutch FinTech landscape: rapidly
expanding and already great diverse Risk management Identity
Security Bank platforms
6. 6 Omnichannel proposition (online, mobile and in shop)
Global service via credit card networks, 150+ currencies accepted
250+ payment methods, including all major card schemes, mobile
wallets such as Apple Pay and Android Pay, PayPall, and all other
local methods. Data products that proactively inform Adyens
merchants on revenue optimization Dutch FinTech case study: Adyen
#19 Global FinTech list Traditional payment chain Adyens model
7. DNB-AFM InnovationHub: variety of new FinTech propositions
in the pipeline Based on first 3 months of Dutch InnovationHub (1
June 1 September) 7 Source: DNB 1 4 8 7 2 8 10 Type of businesses
Bank (1) Insurance (4) Payment service provider (8) Platform (7)
Investment (2) Other (8) For other supervisor - AFM (10) 18 3 10 9
Type of questions Interpretation regulation on new concepts (18)
Business model (3) For other supervisor - AFM (10) Other (9)
8. Lesson from previous tech-driven waves of innovation: beware
of the hype cycle Failure rate of start-up FinTechs likely to be
very high, comes with innovation 8 Source: Gartner
9. 9 Looking ahead: three possible scenarios Source: DNB
10. 10 Scenario1Adoption byincumbent Scenario2 FinTech
Scenario3 BigTech Partnerships Acquisitions Own innovation
Incumbent domestic Specialization Focus on specific parts Whole
value chain Focus on whole chain Incumbent foreign Looking ahead:
three possible scenarios 10
11. How are the scenarios unfolding in practice? Some very
preliminary views Asia: BigTech already dominating large parts of
financial services - Alibaba Alipay: 450 million active users, 175
million transaction per day - Alibaba Yu'E Bao Fund: 260 million
active users, +- 100 $bn. Assets under management - Alibaba/Ping an
ZhongAn P&C insurance: users >370 million policyholders -
Tencent WeChat payments: 700 million active users, 2nd in mobile
payments after Alipay Scenario2 FinTech Scenario3 BigTech Scenario1
Incumbent Globally: Incumbents pick up pace adopting FinTech -
ING/Scotiabank/Santander partnership with Kabbage - BBVA (minority)
acquisitions of Simple, Atom, and Holvi - Ping An China controlling
share in P2P-lender Lufax #11 global list Globally: Thousands
FinTech startups founded in past years, boosted by VC money -
FinTech startups have comparative advantages and disadvantages -
Strengths: innovative, agile, built from scratch, scalable, for
next generation, etc. - Challenges: regulation / risk management
new, costly customer acquisition 11
12. FinTech brings opportunities & risks: Supervisors need
to strike the right balance Financial SectorBetter products, more
choices, and lower prices due to competition Efficiency Increased
diversity within financial sector reduces systemic risks Diversity
Financial risks Lower profitability can give rise to solvency
problems; liquidity risk (automatic funds allocation) Operational
challenges in applying innovations in existing systems (for
incumbents) Operational risks Data security (cyber risk), privacy
risks, money laundering (bitcoin) Integrity risks Procyclicality,
concentration risk Macro-prudential risks Risks beyond supervision
Development of new activities outside of supervisory framework
Opportunities Existing risks New risks 12
13. How to strike the right balance between innovation and
risks? By talking (more) to FinTech firms By allowing for (some)
experimentation (e.g. Sandbox) By thinking carefully about
potential risks By ensuring regular international coordination
between supervisory authorities By working with other market
authorities in your own jurisdiction (e.g. competition, privacy)
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