The retrenchment and intensified regulation of the traditional banking system after the global financial crisis, combined with greater access to information technology and wider use of mobile devices, have allowed a new generation of firms to flourish and deliver a wide array of financial services. What does this mean for the traditional banking system?
In the Global Financial Development Report 2017/18 and a new Research and Policy Brief, we argue that despite the rapid expansion of fintech companies, so far, the level of disruption seems to have been low. This is partly driven by the complementarity between the services provided by many fintech providers and traditional banks. That is, in many instances, the new fintech companies bring alternative sources of external finance to consumers and SMEs, without displacing banks. For example, online lending is an alternative for the type of borrower usually underserved by traditional banks. This is of special relevance not only for households and firms in the developing world (where the banking system is often underdeveloped), but also for underserved borrowers in high-income countries. Moreover, because a bank account is needed to perform many of the fintech services, it is hard now to imagine fintech companies overtaking banks completely and becoming involved in the current accounts niche. There will always be need for a highly regulated service that allows households and firms to keep their money safe and accessible. Banks seem to be the players best suited for that role.