The Basel Committee on Banking Supervision (BCBS) has published a report on how technology-driven innovation in financial services may affect the banking industry and the activities of supervisors in the near to medium term.
The report draws on surveys with bank supervisors and comments received to the BCBS' consultation in August 2017. Following industry-wide scenario analysis, the report focuses on five potential future scenarios to describe the potential impact of fintech on banks:
- 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; and
- the disintermediated bank - banks become irrelevant as customers interact directly with individual financial service providers.
The report 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).
The report suggests that 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. It also states that banking standards and supervisory expectations should be adaptive to new innovations, while maintaining appropriate prudential standards.