Claudia Buch: Digitalization, competition, and financial stability

Opening remarks by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the Seminar "Statistics on Fintech - Bringing Together Demand and Supply to Measure its Impact", organized by the Irving Fisher Committee (IFC) and the Central Bank of Malaysia (Bank Negara Malaysia/BNM), Kuala Lumpur, 17 August 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
20 August 2019

Digital innovations and improvements in information technology have the potential to significantly change the competitive structure of banking markets. They are transforming the way in which information is collected, processed, and analysed. FinTechs and BigTechs potentially have comparative advantages over banks in deploying big data techniques, artificial intelligence, machine learning, or social media data for credit scoring or risk assessments.

There are different channels through which digital innovations can impact banking markets, with different implications for competition and financial stability. Banks can develop new technologies in-house, FinTechs can provide specific financial services, or BigTechs can use their existing network structures to provide a large range of financial services to customers (FSB 2019). New market entrants may provide services to incumbent financial firms or cooperate with existing financial firms such as banks in order to offer new or enhanced financial products to customers. By providing services to incumbents, technology can be improved and costs can be reduced. But new market entrants may also target limited, high value added elements of the value chain of banks and financial firms.

Central banks have many reasons to take an interest in these developments as the structure of the financial system shapes the transmission of monetary policy. Central banks are providers of payment systems, and they contribute to banking and financial market supervision. Technological innovation in the financial sector thus affects central banks along many dimensions.