Working Paper: NBER ID: w26312
Authors: Ren M. Stulz
Abstract: Banks are unique in that they combine the production of liquid claims with loans. They can replicate most of what FinTech firms can do, but FinTech firms benefit from an uneven playing field in that they are less regulated than banks. The uneven playing field enables non-bank FinTech firms to challenge banks for specific products whose success is not tied to what makes banks unique, but they cannot replace banks as such. In contrast, BigTech firms have unique advantages that banks cannot easily replicate and therefore present a much stronger challenge to established banks in consumer finance and loans to small firms. Both Fintech and BigTech are contributing to a secular trend of banks losing their comparative advantage as they have less access to unique information about parties seeking credit.
Keywords: Fintech; Bigtech; Banks; Financial Services; Regulation
JEL Codes: G21; G23; G24; G28; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fintech firms (G21) | Banks face competition (G21) |
| Bigtech firms (D26) | Banks face competition (G21) |
| Regulatory costs (L51) | Fintech firms have advantages over banks (G21) |
| Legacy IT systems in banks (G21) | Banks face competition (G21) |
| Organizational frictions within diversified firms like banks (L22) | Banks face competition (G21) |