The Bank for International Settlements has published a working paper on the economic drivers of FinTech adoption, analysing key forces such as unmet demand, competitive environment, regulation, cost of finance and changing demographics.

On 4 February 2020, the Bank for International Settlements (BIS) published a working paper on the economic forces driving FinTech adoption across countries, focusing on the factors driving the different adoption of FinTech innovations, i.e. the widespread use of new applications, products or processes, in both advanced economies and emerging market and developing economies (EMDEs).

According to the paper, even if FinTech is emerging in every major region of the world, the cross-country rate of FinTech adoption differs depending on the relevant economic environment and field. The paper indicates that FinTech providers have established a strong foothold in mobile payments, especially in EMDEs, where consumers with mobile phones often exceed those with bank accounts or credit cards.

On the other hand, while FinTech credit is economically relevant in the financing of SMEs in some countries, for example, China, the UK and the US, it remains quite small across other regions, namely Continental Europe, the Middle East and Latin America. With respect to the syndicated lending, derivatives and clearing and settlement market, FinTech penetration remains generally low.

The key forces behind the FinTech adoption analysed by the paper are unmet demand, competitive environment, regulation, cost of finance and changing demographics.

Unmet demand and financial inclusion

According to the paper, evidence suggests that FinTech is growing where the current financial system is not meeting demand for financial services. As indicated by the World Bank in 2018, around 1.7 billion adults around the world lack access to a bank account and those who do have an account are not always able to access services like credit, insurance and wealth management. This is the case for both EMDEs, where many households still rely primarily on cash for day-to-day transactions, and for advanced economies with regard to certain groups and minorities.

Unmet demand for basic banking, means of payment and money transfer services appears to be the key factor behind the rapid growth of mobile payments offerings in places like India, Southeast Asia and Latin America. On the other hand, unmet demand is also a driver for FinTech credit in several countries, since the latter helps mitigating supply frictions (for example, large geographic distance between customers and bank branches), allows firms with a lower credit score to access credit, complements bank lending for small-scale loans and allows penetration of areas under-served by traditional banks.

Cost of finance and regulatory environment

As indicated by the paper, financial services have been quite expensive in the past few decades despite technological innovation, and it seems that, as a result, FinTech adoption has been greater, especially where financial services are relatively more expensive or there is less competition among providers.

With specific regard to FinTech credit, the paper shows evidence that it seems prevalent in economies with a higher cost of finance, with a higher average income and where the banking sector is more profitable, often in light of the limited competition.

Otherwise, when investigating how the regulatory environment can aid or hinder FinTech adoption, the paper mentions that a number of studies show how stronger rule of law, quality of regulation, control of corruption, ease of entry or less stringent bank regulation result in higher volumes of alternative finance or higher investments in FinTech. However, notwithstanding the above, while in certain FinTech activities regulatory arbitrage could be a driver of FinTech adoption, there is no evidence supporting this at an aggregate level.


The paper shows there is consistency among studies and surveys proving that 'digital natives' and, in general, younger cohorts are avid users of FinTech and are driving FinTech adoption in several jurisdictions. In other words, FinTech use is higher in countries with a younger population and the paper identifies the different trust in technology as a key factor explaining the above trend. There may be, however, important exceptions to the trend, for example the US credit bureau data shows that a majority of online marketplace borrowers were from older cohorts.

Cross-border competition and risks

As to the implications of FinTech adoption, the paper indicates that FinTech activity could increase cross-border competition in financial services over time, thus improving cross-border financial integration which could support greater diversification and risk-sharing across economies. However, it is crucial that this cross-border expansion is accompanied by adequate cooperation between global regulators to avoid potential regulatory arbitrage.

Finally, the paper points out that while FinTech innovations can sometimes overcome specific market failures, for example by reducing information asymmetries and transaction costs, traditional risks of the financial sector must be taken into account. Reference is made, in particular, to the risk of liquidity mismatch for deposit-like activities where they are carried out by non-banks, the risk of speculative bubbles, moral hazard and excessive risk taking, as well as to the risks arising from new forms of interconnectedness which could transmit market shocks across institutions and markets.

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