1/6  BIS central bankers' speeches  Balance-sheet-light payment services have so far been the main gateway to the financial sector for Tech firms. From there, Tech firms have an avenue to expand their business further along the value chain, from payment to retail and commercial banking, wealth management and insurance. The Tech firms’ model is based on the unbundling of traditional universal banking into an array of distinct core functions (such as channelling payments, providing financing, sharing risk and allocating capital), which are reassembled in an online platform. In this model, the control of the platform is more strategic than the provision of financial services itself. (B) Among these Tech firms, the Fintech start-ups (also known as simply “Fintechs” with an “s”) and the Bigtechs are likely to have a different impact on financial intermediation. Fintech start-ups have already been a game changer in the financial sector. They have imported a customer-centric culture from the internet industry into the financial sector and they have targeted and called into question many of the long-standing financial rents. However, Fintech start-ups do not have the capital resources to disrupt incumbent banks and their future role is likely to be shaped by two main alternatives: to be acquired by an incumbent bank or to compete on niche segments such as equity crowdfunding or market place lending. It could be different with Bigtechs. The market capitalisation of the GAFA companies – Google, Amazon, Facebook and Apple – is 25 times higher than that of the whole Fintech universe.
Rather than eliminating intermediation, if left on its own, digital finance will more likely lead to reshuffling the cards, with the most digitally-agile incumbents and the most financially-able challengers becoming the new dominant (and potentially systemic) intermediaries in a landscape where there would be four coexisting intermediation models: The traditional banking intermediation model for certain financial services, like mortgages; A non-bank financial intermediation model (formerly known as “shadow banking”) performed by the asset management industry, in particular financing the corporate sector; A re-intermediated model, in which Fintechs and Bigtechs intermediate the banks, on the retail segment in particular; And a fully disintermediated model supported by blockchain and peer-to-peer economies. 2. The digital revolution forces public authorities with an interest in financial stability to revisit a wide array of policy issues This move from a bank-centric intermediation model toward new unbundled financial intermediation models performed by multiple players does not eliminate the need for central 2/6  BIS central bankers' speeches  banks, regulators and supervisors. But it does force us to revisit old questions (A) and to address new ones (B). (A) I would like to highlight two old questions that we must revisit. First, the activities to be covered by financial regulation. Just as an example, the use of the public cloud to perform core banking operations is becoming mainstream. Fintechs and Bigtechs have adopted an “all-in” strategy. Incumbents are also migrating, although more cautiously, to the public cloud.