How FinTech Will Transform Banking... If Politics Permits It

FinTech firms that are providing banking services look very different from traditional banks. They tend to specialize either in payments or credit (a phenomenon known as unbundling), and they often fund themselves using off-balance sheet mechanisms. These and other aspects mean that they are more efficient and profitable than existing banks, and they also have shown the ability to be more inclusive of customers that are poor or members of minority groups. The next generation of these intermediaries could prove even more effective at delivering beneficial services, unless the self-interested defenders of the status quo (who correctly see progress as a threat to their own entrenched interests) succeed in killing off new intermediaries with prohibitive regulations. Stable coin banks of the future are a particularly interesting example of a way to improve service to customers and foster greater stability of the payments system. But that means they are all the more under political attack by special interests.