The Development of FinTech. Opportunities and Risks for the Financial Industry in the Digital Age - With Preface to the FinTech Series

122 Pages Posted: 4 Sep 2020

See all articles by Cristiana Schena

Cristiana Schena

University of Insubria

Alessandra Tanda

University of Milan; Department of Economics

Carlo Arlotta

University of Insubria

Gianluca Potenza

Consilia B.M.

D'Agostino Giuseppe

CONSOB (Commissione Nazionale per le Società e la Borsa)

Pasquale Munafò

CONSOB (Commissione Nazionale per le Società e la Borsa)

Date Written: March 1, 2018

Abstract

The research analyses the operation of FinTech companies, highlighting the benefits and risks that their development generates in terms of competitive stimulus within the financial system and streamlining its operating mechanisms, broadening the accessibility of financial services for customers and improving the satisfaction of their financial needs, the correct and efficient allocation of financial resources to the benefit of economic growth, as well as the correct and transparent management of information and risks linked to financial services, especially when directed at retail investors.

First of all, the work qualifies the type of FinTech companies, clarifying the fact that they are a fully-fledged new component of the financial industry, since they perform financial activities using innovative technological solutions. FinTech, therefore, is a phenomenon that is developing within the financial services industry, in the wake of the more general process of creation of the digital economy.

In particular, the work highlights the product and process innovations introduced by these new financial operators, as well as the extensive areas of overlap or affinity identified on the operating plane for intermediation performed by traditional intermediaries and financial markets subject to supervisory rules. In addition, the analysis reveals the different business models adopted by FinTech companies, through the development of direct and indirect digitalised financial intermediation channels. Particular attention is also paid to the examination of risks linked to FinTech operation, as well as the critical aspects that may be identified with regard to both the management of the services offered and the fairness and transparency towards customers.

Overall, this paper makes a series of considerations that contribute to the on-going international debate on the opportunities and methods of regulating FinTech and that support the definition of a regulatory architecture that is more activity-based than today's more prevalent entity-based structure, which is not sufficient to ensure, on the one hand, neutral rules for the technological solutions adopted by individual financial operators and, on the other, equal protection for customers.

The regulatory decisions that are to be made may have as yet unpredictable effects on the development of market shares and the range of offering of new operators, on the degree of competitiveness of the financial industry and on its evolution in the different countries.

However, considering that the digitalisation of financial activities is an incontrovertible process and a structural feature of the new financial industry, the final part of the paper highlights the strategic choices that financial intermediaries (namely banks) are making in this changed market scenario.

Keywords: FinTech, digitalisation, innovation, financial industry, incumbents, business model, marketplace, financial services, lending, crowdfunding, payment services, risks, fairness and transparency towards customers, financial stability.

JEL Classification: G29, G28

Suggested Citation

Schena, Cristiana and Tanda, Alessandra and Arlotta, Carlo and Potenza, Gianluca and Giuseppe, D'Agostino and Munafò, Pasquale, The Development of FinTech. Opportunities and Risks for the Financial Industry in the Digital Age - With Preface to the FinTech Series (March 1, 2018). CONSOB Fintech Series No. 1, Available at SSRN: https://ssrn.com/abstract=3685262 or http://dx.doi.org/10.2139/ssrn.3685262

Cristiana Schena

University of Insubria ( email )

Via Ravasi 2
Varese, 21100 21100
Italy

Alessandra Tanda

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

Department of Economics ( email )

Via Vivaldi 5
Genova, 16126
Italy

Carlo Arlotta

University of Insubria ( email )

Via Ravasi 2
Varese, 21100 21100
Italy

Gianluca Potenza

Consilia B.M. ( email )

D'Agostino Giuseppe

CONSOB (Commissione Nazionale per le Società e la Borsa) ( email )

Roma 00198
Italy

Pasquale Munafò (Contact Author)

CONSOB (Commissione Nazionale per le Società e la Borsa) ( email )

Roma 00198
Italy

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