Germany’s Central Bank president Jens Weidmann has expressed concerns about the current growth of fintech. He specifically sees it as a threat to current banking and financial industries because the technologies are new. He fears that firms will be overly vulnerable in implementing technology that hasn’t been tested in an economic downturn. He stated that “assessing the risk was impossible without reliable data” (Koranyi, 2017).
While his concerns about using untested technology is valid, he seems to be missing the point. Financial technology improvements allow for better user access, reduced clearing and settling times, and less reliance on intermediaries. The only way to see how this holds up in the real world is to try it. If Weidmann wants reliable data to assess risk, he needs to let people get data first.
Additionally, Weidmann is talking about fintech as if it were all one concept. It’s not. There’s blockchain technology; there’s cloud based advances; there’s biometric financial solutions, the list goes on. Each different financial technology should be assessed on its own merits and risks. Not all innovations are good, but we shouldn’t deprive ourselves of opportunity just because of this fact.
http://www.reuters.com/article/us-fintech-bundesbank-idUSKBN1591LV
When I heard about how investments in fintech have increased so much over the past couple of years and how fintech startups have been able to disrupt the financial industry, I knew this was partly due to the startups being able to operate quickly without being regulated like traditional financial institutions. However, what is a little confusing is that although fintech companies can offer similar services as traditional financial institutions, they are not under the same regulations. I wonder if this is because the fintech companies are new and eventually will face heavy regulations, or once an economic downturn happens, the flaws of fintech companies will be shown, and subsequently put under more regulations.
I agree that it’s odd to see fintech and traditional financial institutions operating under different rules. I think this is mainly due to the newness of the technology. I think we will see fintech become more regulated as it is used and understood, similar to how Uber’s originally un-regulated service is now facing regulations. While still not at the same level of taxis, the conversation is started because proof of concept is there. Once different fintech reaches the same wide-spread use, I see it gaining regulation.