Bigger Fish to Fry: FinTech and the Digital Transformation of Financial Services

FinTech has been promoted as an economic policy opportunity, for example, in the UK and in Singapore, with interventions made to support FinTech start-ups through favourable regulatory treatment. This has included the use of regulatory sandboxes, favourable tax treatment, and some limited financial support for start-up firms, alongside wider pro-competition policies in banking and payments. This chapter provides an economic analysis of these policies, arguing that they can lack coherence. Policies should focus on the broader and more significant challenge of digital transformation—using digital technology to address market and organisational failures across financial services—and addressing the governance challenges that restrict this digital transformation of finance. This requires measures, such as open banking, to eliminate barriers to competition. It further requires substantial regulatory engagement and dialogue with the industry on the development of the information and data infrastructures that will allow them to properly support customer needs, control prudential and systemic risk, and meet other key regulatory objectives. This argument is illustrated with reference to the UK, looking at both the promotion of FinTech as a policy goal and the ongoing digital transformation of UK insurance.