FinTech Credit: Market Structure, Business Models and Financial Stability Implications

This report published by the FSB and the Committee on the Global Financial System (CGFS) finds that FinTech platforms account for an increasing share of credit provision and policymakers have to consider the opportunities and risks such activity brings. Although FinTech credit markets are currently small in size relative to traditional credit markets, they are growing at a fast pace. The report analyses the nature of FinTech credit and finds wide variation in the business models of the electronic platforms involved. Platforms facilitate various forms of credit, including consumer and business lending, lending against real estate and business invoice financing. The profile of investors, which platforms match to borrowers, also differs across countries.

The report reaches a number of conclusions:

• Lower concentration of credit provision from banks could help to diversify economies’ credit channels and reduce the risks of credit upsets if bank lending is interrupted.
• FinTech platforms may increase competition and help consumers by pressuring banks to be more efficient.
• While FinTech credit could lead to increased financial inclusion, it could also lower lending standards with negative consequences for financial stability in countries where credit markets are already deep.
• Incentive problems, caused by a reliance on fee income (an ‘originate-to-distribute’ model), could pose a problem at some platforms.
• FinTech credit provision could rise and fall with the business cycle, with the potential for a pullback of credit provision to certain parts of the economy, if market stress leads to a loss of investor confidence.
• If FinTech credit growth could encourage greater risk-taking by banks and there is an abrupt erosion in bank profitability, it could generate broader stresses for the financial system, given banks provide a range of systemically important services.

The report notes that the availability of official data on FinTech credit is limited, so most analyses of these markets rely on non-official sector sources, such as academic surveys, industry bodies and financial disclosures by FinTech companies. As a result, data availability and quality may warrant increased attention from authorities as FinTech credit markets develop.