Whether you tend to regard the increasing digitalisation of the financial sector as a destructive force or as an opportunity is a question of perspective, because digitalisation has a bit of both: it has its destructive elements, but – to quote loosely from Schumpeter – it’s a creative destruction, one that can also offer opportunities and give rise to new things. That by no means suggests that the old, i.e. the established world of finance, is necessarily doomed to failure.
Yet digitalisation and big data are having an influence on the entire value chain of financial services. They may even break up this chain and reassemble it anew. There may also be links in the chain that will become obsolete in a few years’ time.
The question is what this creative destruction does to the business models of banks and insurers. Take insurers, for example: given the amount, range and quality of the data modern technology allows them to gather and analyse, they will in future be able to tailor their tariffs to individual customers with increasing precision. From a regulatory perspective, this is both sensible and desirable. Ultimately, however, big data could put the concept of the community of the insured to the test.
The financial sector is undergoing radical change, driven primarily by digitalisation. Companies with innovative technology driven business models – so-called fintech companies – are pushing onto the market and pose a challenge to established companies.
However, even the established companies are increasingly using digitalised processes. They are forging alliances with fintech companies, draw inspiration from their models, or develop their own ideas.
Thanks to the large data volumes that can now be collected and analysed, insurers can tailor their tariffs to customers with increasing precision. However, the digital revolution also spans technological innovation in payment transactions, crowdfunding, automated financial advice, comparison services platforms and virtual currencies, all of which hold opportunities as well as risks. Security, in the sense of protection against cyber-attacks, is therefore an important issue for fintechs and established companies. The threat of these types of attacks increased again in 2016.
At the beginning of 2016, BaFin established a fintech project group; as at 1 January 2017, its responsibilities were transferred to an organisational unit in the President’s Directorate specifically set up for the purpose.
Once a fintech company has entered regulated territory, it will be supervised by BaFin in the same way and according to the same rules as established companies – following the principle of proportionality. In this process, BaFin tries to pursue a technology- and innovation friendly administrative practice, for example by communicating clearly and promptly. BaFin has no mandate to stimulate economic development – to avoid potential conflicts of interest, among other reasons.
Information tailored to affected companies Start-ups and fintech companies have, for some time now, been able to contact BaFin by using a special online form. To make it easier for companies to familiarise themselves with supervisory issues, the BaFin website provides compact, easy-to-follow information on a number of fintech business models that is specifically tailored to fintech companies. BaFin also supports direct dialogue by attending various events. In June, it hosted its own conference, BaFin-Tech 2016.