The FinTech Opportunity

Abstract FinTech covers digital innovations and technology-enabled business model innovations in the financial sector. Such innovations can disrupt existing industry structures and blur industry boundaries, facilitate strategic disintermediation, revolutionize how existing firms create and deliver products and services, provide new gateways for entrepreneurship, democratize access to financial services, but also create significant privacy, regulatory and law-enforcement challenges. This chapter assesses potential impacts of FinTech on the finance industry. First we show that financial services remain surprisingly expensive in the U.S., which helps explain the emergence of new entrants. We then argue that the current regulatory approach is subject to significant political economy and coordination costs, and therefore it is unlikely to deliver much structural change. FinTech can improve both financial stability and access to services, but this will require important changes in the focus of regulations.