FSB | FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability

The COVID-19 pandemic has accelerated the trend toward digitalisation of retail financial services.

This report examines whether the COVID-19 pandemic changed the ways in which individuals and firms engage with innovative financial service providers and traditional financial incumbents. Its main finding is that the pandemic has accelerated the trend toward digitalisation of retail financial services.

Comprehensive data on market shares of FinTechs, BigTechs and incumbent financial institutions in retail digital services are scarce. However, available proxies and insights from market participants suggest that BigTechs in particular have further expanded their footprint in financial services.

The report discusses benefits from accelerated digitalisation of financial services during the pandemic, and whether those observed changes may be structural or revert back to pre-pandemic levels once conditions normalise. The report also considers the financial stability implications of this accelerated trend towards digitalisation, such as potential market dominance of certain players, and the related concerns around incumbent financial institutions that may be digital laggards.

The report outlines the range of policy actions authorities have taken during the pandemic that may impact market structure and the role of FinTechs, BigTechs and incumbent financial institutions. These actions relate to financial stability, competition, data privacy and governance issues. The report also outlines parallel international work on third-party dependencies of the financial sector, for instance in cloud computing.

The report stresses the importance of cooperation between regulatory and supervisory authorities, including those charged with overseeing the bank and non-bank sectors, and where relevant, with competition and data protection authorities.

Compliments of the Financial Stability Board.