In an April 13 blog post, the International Monetary Fund (IMF) explained the benefits that FinTech companies have brought to consumers, but it also highlighted the challenges that these sometimes lightly regulated entities pose for regulators. The IMF’s recommendation to reduce risks is more regulation.
According to the IMF, while most FinTech businesses are still small, they may expand quickly across both riskier clientele and industry categories than traditional lenders, raising the stakes for regulators and supervisors. This rapid expansion and growing relevance of FinTech services might pose systemic hazards.
“Not only do FinTech firms take on more risks themselves, they also exert pressure on long-established industry rivals,” the post stated.
FinTech services are more vulnerable to consumer lending risks than their conventional equivalents, as they typically have fewer buffers against losses, which tend to be more uncollateralized, the IMF explained. As an example, the IMF described the mortgage market in the U.S., where FinTech mortgage originators pursue an aggressive expansion strategy during periods of increased house financing, as during the pandemic.
The IMF…
