DP15352 Finance and Technology: What is changing and what is not

Author(s): Stephen G Cecchetti, Kermit Schoenholtz
Publication Date: October 2020
Keyword(s): big tech, Central bank digital currency, digital currency, financial innovation, financial institutions, financial regulation, Financial Services, Fintech, peer-to-peer lending, Remittances
JEL(s): G20
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15352

Technology has long had a profound impact on financial services. Today, it is changing the range of services offered, as well as their delivery, cost, and accessibility. Yet, despite the explosion of small firms applying new technologies, very few of these new fintech companies have a broad influence on financial activity. Even in some sectors with significant entry, unit costs of financial intermediation remain stubbornly high. At the same time, there are notable fintech successes, especially in the provision of payments and credit in China. Going forward, the impact of fintech is likely to be greatest where existing suppliers lack competitive incentives or sophistication. Over the next decade, the decisions of regulators will have a profound influence on the array of financial services available, on how they are delivered and to whom. In the advanced economies, regulators generally support greater fintech competition, favoring lower costs and improved access. Furthermore, as Big Tech firms and large incumbent financial institutions vie for dominance, their large fintech investments will make them increasingly alike. Over time, it is anyone's guess which of these firm types will win the race.