What does financial intermediation theory tell us about fintechs?

Abstract

Technology and the widespread usage of internet have gradually changed the design and delivery of several banking services. Internet and mobile banking has become the self-service delivery channel, while new information technologies have lowered the barrier of entering the finance industry. These changes have fueled the entrance of new type of banks and financial institutions in the financial sector. The common characteristics of these new entrants that they adopted an internet-only strategy and rely on online and mobile networks to meet the customers’ transaction and financial needs. The rise of new internet-based players is a global trend, reaching developed and developing economies alike. This study discusses the role of these new entrants in the financial market in the context of the financial intermediation literature. It focuses on two particular segments of the Fintech sector: online marketplace lenders and neo-banks. The main questions the study is addressing is what role Fintechs are playing in financial intermediation and whether these players are complement or compete with commercial banks. Are these players disintermediating commercial banks or do they play a rather supplementary role in the financial intermediation?