Market Exposure to Fintechs: Too Risky?

Peter Mitic

INTRODUCTION AND MOTIVATION

It is very curious that attitudes expressed by banks towards fintechs have changed markedly since the mid-1990s, and particularly, since the 2008 financial crisis. Back in the 1990s, a bank would listen politely to any small company trying to market a financial product, but any attempt to sell that product would get no further. Now, it appears to be the height of fashion to encourage and embrace fintechs. The way in which they align with traditional banking services, on both the consumer and institutional levels, is being examined ever more closely.

It is not difficult to rationalise this. Fintechs compete with banks. They offer products and services that often undercut similar products and services that the banks offer, and can also offer new products and services. Banks are large, inflexible, institutions and are mostly very conservative. With increased competition, banks are forced to take fintechs seriously to enhance their competitive positions and retain market share, and the fintechs are taking advantage of that.

This chapter is an examination of what is perceived as an increasing exposure of traditional banking institutions to fintechs.

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