The members of the EACB welcome the opportunity to comment on the BCBS consultative document on the implications of Fintech developments for banks and supervisors.
In general, EACB members appreciate the fact that the BCBS decided to align the definition of FinTech with the one given by the Financial Stability Board, as done also by the EBA in its discussion paper on the EBA’s approach to financial technology (Fintech), i.e. “Technologically enabled financial innovation that could result in new business models, applications, processes, or products with an associated material effect on financial markets and institutions and the provision of financial services”.
Indeed, the term Fintech is most of the time used synonymously with “Fintech start-up companies”, thus ignoring that technology-enabled innovation in financial services does not depend on the size or legacy of a firm and that innovative financial technology–based solutions and services are increasingly being developed by banks.
In our view, it is particularly important to agree on a common understanding given that the definition can influence how supervisors approach Fintech.
Having said that, using the proposed definition risks putting bank driven developments such as instant payment outside the Fintech perimeter as it might not be considered as being based on a particular technology other than the increase in computer power and digitalisation of processes in general. The instant payments development however, does have an important impact on “business models, applications, processes and products and has an associated material effect on financial markets and institutions and the provision of financial services”. It also could increase or reduce certain risks depending on its relation with other Fintech developments. This report having the objective to “identify and assess risks and related supervisory challenges, both for banks and bank supervisors”, we therefore believe that instant payment should be given a place in this report either as part of the Fintech definition or as an innovation that needs to be seen in combination with Fintech developments.
More in general, the use of technologies by financial services firms is not new per se. Financial services firms have long implemented internal technological solutions to support the provision of services to their customers and to ensure that they comply with their regulatory obligations. As such, it should be considered that the essential nature of the banking business (i.e. risk and maturity transformation) is not put into question by the use of technological solutions.
What we would particularly like to stress is that a level playing field is key to assure not only fair competition but also a sound prudential environment and consumer protection.
The same regulatory conditions and supervision should apply to all actors who seek to innovate and compete on Fintech: large digital players (big tech firms), financial institutions players (incumbent banks) and Fintech start-ups players.
At the same time, the regulatory framework while keeping entry barriers to a minimum, should also not hinder incumbents’ ability to innovate and develop. Due to entry of global internet giants/business platforms and new agile challenger firms using fintech, customer expectations have changed dramatically. Banks should be able and allowed to innovate a new breed of services to remain relevant. For example, some of our members are actively refining old banking products (such as mortgage and car loans) into combined packages, like smart housing and mobility-as-a-service concepts. These services include also non- financial elements and more active cooperation with third parties. We encourage regulators to adopt proactive approach to the evolution of future banking services.
The principle of “same services, same risks, same rules and same supervision” in order to ensure a high level of consumer protection and preserve financial stability should always apply. It would not make sense to have deeply revised the prudential framework and established recovery and resolution tools, if threats to financial stability are allowed only for the sake of technological novelty. In this regard, the European Central Bank has for instance launched a first consultation to assess the criteria for licensing FINTECH banks.