FinTechEBA flags dangers and opportunities in fintech race

EBA flags dangers and opportunities in fintech race

A pair of reports from the EU watchdog point to the dangers of being slow to adapt, the risks of moving too quickly, and the benefits of partnering with tech firms.

A pair of new European Banking Authority (EBA) reports have highlighted the divisions between financial institutions across Europe in their differing approaches to technology. As the fintech race gathers pace, the EU watchdog has warned that those slow to adapt risk being left behind by quicker, more nimble competitors.

But in addition to the dangers inherent in being behind the times, the EBA points to the risks of rushing into new technologies without having a clear strategic objective or putting the appropriate governance and operational structures in place.

The reports form part of the EBA’s FinTech Roadmap. They examine major – but unnamed – banks across the continent and divide them into three categories: those that take an aggressive, pro-active approach to adopting new technology; more cautious, reactive institutions; and those reluctant to change, which are often weighed down by outdated systems.

The EBA concludes that the most beneficial model is for institutions to partner with specialist fintech companies, in what it believes is a ‘win-win’ situation.

Among the topics discussed are biometrics, which creates a dependency on mobile device manufacturers and other providers, thereby increasing third-party risk; the increasing use of machine-learning in credit scoring, which has the potential to speed up decision-making; and the opportunities for distributed ledger technology (DLT) and ‘smart contracts’ to make transactions more streamlined and less labour-intensive.

“Institutions consider that BigTech firms [such as Google, Facebook and Amazon] have the potential to become significant competitors in the provision of financial services, as is evident from their increasing footprint in the financial sector,” the EBA said.

“But at this stage, fintech firms do not seem to be in direct competition with established banks, despite the fact that some fintechs are reaching maturity in terms of scale of operation and profitability.

“Nevertheless, the competition among incumbents appears to be growing as a result of the fast-paced technological development and many institutions competing to achieve the first-mover advantage.”

The reports can be downloaded here and here.

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