Working Paper: CEPR ID: DP15004
Authors: Arnoud W.A. Boot; Peter Hoffmann; Luc Laeven; Lev Ratnovski
Abstract: We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.
Keywords: financial intermediation; financial innovation; fintech; information; communication
JEL Codes: G20; G21; E58; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological innovations (O39) | vertical and horizontal disintegration of traditional banking models (F65) |
| Technological advancements (O33) | emergence of new intermediaries (D40) |
| Rise of machine learning and AI (C45) | efficiency of financial services (G20) |
| New communication channels (L96) | disintegration of banking services (F65) |