The potential of FinTech and the threat of firms leveraging innovative technology, such as Blockchain and AI, to traditional financial institutions was raised by the Bank of England Governor Mark Carney last week at the International Fintech Conference 2017 in London.
Whilst initially the potential of blockchain, IoT and AI may he been overlooked by banks and other financial services as a fad, now the possibilities it offers to both companies and users have forced established businesses to re-examine the impact it could have on the financial sector.
Speaking at the event, Carney described how people turning to new options presented by FinTech could hurt established businesses. Traditional financial services may require the intervention of the bank of England, Carney stated, to ensure that banks affected by FinTech alternatives were in a strong enough position to survive. By using new technology, FinTech companies can offer less costly options to businesses, especially to ones that might not be able to afford the current opportunities in crowdfunding, advice or peer-to-peer lending.
Despite this, Carney was of the opinion that there was no need for an increase in regulation in this area as the activities the firms were not currently engaging in traditional banking activity. Instead, he focussed on the potential benefit that growth in the UK FinTech market could bring. In this, Carney said he saw the role of policymakers as ensuring that the risks of fintech are minimized, whilst the potential it offers is fully realised.
Chancellor Philip Hammond also spoke at the event, commenting: "If the UK is going to make the most of the freedoms it will have after leaving the European Union we have to build trade links with the fast-growing economies of Asia, we have to invest in the skills of the future and our economy must remain at the cutting edge. Not just of Fintech [but] of AI, biotech – of every area in which we have the potential to lead the world into this new industrial revolution. The world does not owe us a living. We will have to strive and graft and fight to seize opportunities; and make the most of them."
Financial institutions are perhaps the first to feel the bite of competition from start-ups using new technological developments due to the fact that blockchain was created in 2009 specifically to enable the disruption of the financial sector by providing a way to safely and quickly transfer value that removed middle men – including banks. Since then, the value of blockchain has been found to be applicable to a multitude of sectors, from healthcare to shipping to gambling. Whilst these areas are not yet experiencing as much disruption as financial companies, it is only because the developments have started more recently. In time, the same impact that is being made on the financial sector will be felt on others. By listening to the experience and advice of financial incumbents, other markets may be able to adapt better to upcoming changes.