FinTech, BigTech, and the Future of Banks

By René M. Stulz. Journal of Applied Corporate Finance, 2019

211 citations recorded by the source corpus.

Banks are unique financial institutions in that they combine the production of liquid claims—that is, demand deposits—with loans. Though banks can replicate most of what FinTech firms can do, FinTech firms benefit from an uneven playing field in that they are less regulated than banks. The uneven playing field enables nonbank FinTech firms to challenge banks in specific product areas where success is not tied to what makes banks unique—namely, their deposit‐gathering abilities and the potential for synergies with borrowers provided by deposits. And although banks’ responses to FinTech have also been hampered by their legacy IT systems and by internal frictions inherent in large diversified firms, FinTech's narrow product offerings and lack of established “franchises” appear to put clear limits on Fintech's ability to displace banks. Unlike Fintech, however, BigTech firms have some advantages that banks will find it harder to replicate, and so they present a much stronger challenge to established banks in two main areas: consumer finance and loans to small firms. And FinTech as well as BigTech are contributing to a trend in which banks are losing a comparative advantage that has derived from having more immediate access to information about parties seeking credit. The extent to which banks succeed in warding off such threats will depend on (1) their ability to make effective—and possibly even better—use of the same information technology now being used by its new competitors, and (2) their success in realizing economies of scale and scope that their nonbank competitors will find hard to match.

Subfields: Management Information Systems

View Paper: https://www.semanticscholar.org/paper/5b6779d469b0fe0ea4950d83fce25848237d4276

Citations in the corpus

• Do FinTech trigger renewable energy use? Evidence from OECD countries (2021, unknown): “6 The FinTech industry has been found to provide new capital forms (for instance, through digital lending [43]).”
• Sustainability in FinTechs: An Explanation through Business Model Scalability and Market Valuation (2020, unknown): “Further research avenues may concentrate on the converging business of FinTechs, banks, and BigTechs [74], driven by digitalization [75], disintermediation, customer centricity, and other centripetal forces that support green finance and sustainable development [76,77].”
• Fintech investments in European banks: a hybrid IT2 fuzzy multidimensional decision-making approach (2021, unknown): “Our findings are consistent with studies such as Koomson and Ibrahim (2018), Azemi et al. (2019), Asamoah et al. (2020), Mensah et al. (2020), Gupta et al. (2019), Stulz (2019), and Yao et al. (2018a, b).”
• Open Banking: Credit Market Competition When Borrowers Own the Data (2020, unknown): “…who has experienced remarkable growth thanks to their aggressive investment in new technologies, the traditional banking sector is not only hampered by their profitable legacy business ( Stulz, 2019 ) but also suffers from heavier regulatory burdens ( Buchak et al., 2018; Gopal and Schnabl, 2022 ).”