Fintech companies are “much hype”

As the number of fintech companies – blockchain developers, P2P lending platforms, electronic payment apps and automated trading platforms, among others – increase in numbers and get ever more vocal in their threats that they will disrupt the traditional financial system and will herald a new era in financial services, the facts show that their influence is still small and are “hardly useful”, as the Bank of England had noted.

The latest confirmation of this reality are the comments of Svein Andersen, secretary-general of the Financial Stability Board (FSB), which coordinates financial regulation across the Group of 20 economies (G20), quoted by Reuters.

“In our judgment, most fintech at this stage, have not come to a point where systemic financial system risks are posed,” he told a conference of the Chatham House international relations think tank and added that at this point fintechs were just “much hype”.

Lured by the hype, the traditional financial services providers are seeking to partner with a fintech or buy them in order to “piggy-back” on their know-how, sometimes drawing them into the mainstream.

The examples for this are plentiful, probably the most notable being the SBI Ripple consortium with the participation of 42 Asian banks that launched a few weeks ago.

A recent survey of IDC Financial Insights and sponsored by SAP SE revealed that six in 10 banks would partner with a fintech and another report showed that only in the first half of this year venture capital has invested in blockchain technology companies a total of $290 million.

According to Andersen, however, the fact that the fintech companies and their services still have a tiny share of the entire financial industry, does not mean that they should be ignored. On the contrary, it is essential for regulators to keep a close eye on the developments and understand how the fintechs might challenge “the establishment”.

“Authorities are “acutely aware” of the need to monitor actively and find a balance between acting when the risks begin to rise and allowing new technology to develop,” Andresen said. “The focus of the FSB has been skewed to looking at fintech in wholesale rather than retail markets, and with fintech growing very rapidly in some countries, once the “cat is out of the box”, it can be difficult to contain,” he added.