The revolution that digital technology has brought is already impactingthe world of financial intermediation. The term fintech denotes this innovative use of technology in financial services that has already made its mark on lending platforms, payment systems and even financial advice. Naturally, financial intermediaries are also adopting new technologies and some, such as the ATM, have a long history. In fact, Paul Volcker, the president of the Federal Reserve that ended the dragon of inflation, said long ago that he considered the ATM as the most important innovation in the financial sector. The current revolution goes much further and is based on the treatment of large databases with algorithms based on artificial intelligence and advances in computing and mobile storage in the cloud. This revolution encourages new business models in which three types of players compete: established traditional intermediaries, new entrants in the market and the great internet technological giants.

For now, the impact of fintech companies is limited but their growth is rapid. P2P (peer-to-peer) platforms provide credit to small businesses by small investors without bank intermediation. Some use algorithms to select the projects to finance. They are growing in the United States and in Europe, especially in the United Kingdom. The robotic financial advisors use the information they have from clients, processed with artificial intelligence algorithms, to compete with low costs with traditional advisers. Digital currencies are growing, even some observers warn of a possible expansive bubble. They are based on the blockchain technology that allows to verify transactions without external intermediation. This method has a great disruptive potential and a reduction in transaction costs. It is precisely in payment systems where new technologies are having a considerable impact. Internet giants such as Apple or Google have innovated and proposed fast and convenient electronic payment mechanisms, which have reached almost 150 million users in the first half of 2017.

New technologies can accelerate the provision of financial services in countries where traditional financial intermediation is still limited. It is not by chance that it is in China where the Fintech market is more developed, nor that the opportunities of mobile banking in Africa, where only one in four people have a bank account, are very high. Even so, the transformative impact in developed countries will be very important.

Established intermediaries can react in three ways to the new situation.

The first is to try to prevent the entry of new competitors; the second is to accommodate them in the market; and the third is to ally with them. The answer will be a mixture of the three strategies. The challenge for entrants is whether or not to assume the high regulatory costs of establishing a bank. The challenge for traditional companies is to adopt new technologies when they still have a legacy of technological capital that is becoming obsolete. The big threat for these is not the small entrants, but the technological giants that can try to monopolize the digital relationship with customers and take advantage of the massive database they have of users. Traditional banks have two advantages. The first is access to a relatively cheap deposit base and with crisis insurance mechanisms. The second is your access to a stable customer base, at least for the time being.

The future development of fintech will depend largely on regulation.

The challenge for the regulator is to maintain a balanced playing field between traditional intermediaries and entrants in a way that promotes innovation, and that financial stability is preserved. Fintech entrants can not be the new parallel bank that contributed significantly to the financial crisis.

The European authorities intend that the same rules and supervision apply to the same services, regardless of which entity provides them. The proposal is correct, but it must be borne in mind that it is currently the entities that are supervised, since they are the ones that can break down and generate problems in the financial system. The current trend is to deal with new entrants offering what has been called the sandbox so that they can experiment without being subject to strict regulation of financial institutions, and regulators can learn how to maintain new activities safe. We hope that both regulators and financial companies put the customer-consumer at the center of their concerns so that new technologies provide a higher level of well-being.