COVID-19, Banks, and Fintechs

Abstract

The 2020 COVID-19 pandemic and the social distancing measures implemented to stop its spread will leave its mark on people, industries, and government policies long after the disease's health risk recede. One of the industries that has been transformed is financial services. As the pandemic spread, customers flocked to online and mobile platforms for financial services. Banks turned to fintech companies for the technology and expertise to be able to safely provide these products. Thus the pandemic hastened the adoption of technology by traditional banks and opened new partnership opportunities for non-bank fintech companies. The pandemic also reoriented financial regulators toward technology. By highlighting the risks that arise when technology does not live up to its promise, the pandemic encouraged regulators to scrutinize banks' use of technology and bank-fintech partnerships. At the same time, by highlighting the promise of technology, the pandemic encouraged regulators to use more technology in their supervision of banks. Finally, the pandemic will accelerate the transformation of some fintech companies from agile disruptors operating largely outside significant regulatory framework, to mainstream financial services companies that are regulated more like traditional banks. Policymakers will have difficult decisions about the best way to bring fintech companies within the regulatory fold. Nevertheless, the pandemic emphasized that fintech is now a critical element of a modern financial system.