The Basel Committee on Banking Supervision today released a consultative document on the implications of fintech for the financial sector. The document assesses how technology-driven innovation in financial services, or “fintech” is set to fundamentally change the banking industry and the activities of supervisors in the near to medium term. This may result in banks changing their operating models and regulators adapting to address risks while promoting innovation.

Market observers have contradictory views on the effect of fintech on banking. Some believe that up to 40% of revenues could be at risk over the next 10 years, while others insist that the established players will absorb the new competitors and that would result in increase in their own efficiency. However, no ones doubts that need to change the existing operating models to keep pace with technological innovation and changing customer expectations.

The Basel Committee says that in this changing landscape, banks and regulators need to be aware of new supervisory issues. The Committee has identified 10 key observations and related recommendations on the supervisory issues for consideration by banks and bank supervisors, the details of which can be found in the report.

The paper highlights the strategic and profitability risks, operational, cyber and compliance risks as the key risks associated with rise of fintech. Both nature and scope of risks as understood by earlier will thus change, however this should not be deterrent to beneficial innovation.

The banks and regulators have been asked to be watchful of innovations in field of enabling technology, and rise of third party players (via outsourcing and partnerships). The regulators have been advised to cooperate with supervisors and other relevant authorities, to cooperate internationally and also use of innovative supervisory technologies.