Fintech credit report shows potential and risks

By Jim Bulling and Michelle Chasser

On 22 May 2017, the Committee on the Global Financial System (CGFS) and the Financial Stability Board (FSB) released a report titled ‘FinTech credit’. FinTech credit is credit activity facilitated by electronic platforms, such as marketplace lenders. This usually involves borrowers being matched directly with investors, although some platforms use their own balance sheet to lend.

The report examines FinTech credit markets and how they will affect the nature of credit provision and the traditional banking sector. The report is also aimed at assisting policymakers understand current FinTech credit markets, and the associated challenges in monitoring and regulating such activity. It also assesses the potential microfinancial benefits and risks of these activities, and considers the possible implications for financial stability in the event that FinTech credit should grow to account for a significant share of overall credit.

This report provides several key messages.

• The nature of FinTech credit activity varies significantly across and within countries due to diversity in the business models of FinTech credit platforms. Overall, the potential benefits of FinTech credit lie in lower transaction costs and convenience for end users relative to traditional banks.
• Although FinTech credit markets have expanded at a fast pace over recent years, they currently remain small in size relative to credit extended by traditional intermediaries. In absolute terms, the largest FinTech credit market is China, followed at a distance by the United States and the United Kingdom.
• A bigger share of FinTech credit (as opposed to credit obtained through traditional channels such as banks) in the financial system could have both financial stability benefits and risks in the future. Access to alternative funding sources in the economy may lead to efficiency pressures on incumbent banks, but also the potential for weaker lending standards and more pro-cyclical credit provision in the economy.