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Unfulfilled Hype Has Created Disillusionment With Fintech, But Potential Remains, Regulators Say

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Unfulfilled hype may be forcing some fintech offerings into a “trough of disillusionment” but the history of other financial innovations shows fintech could still have a lasting effect on banking, the Basel Committee on Banking Supervision said in a report today.

A trough of investment hit fintech big time in 2016 when new global investments fell to $25 billion from $47 billion the year before.

But the global regulators' study pointed to the bursting of the dot.com stock bubble in 2001 ---which wrongly convinced many observers that the internet would never be a major marketplace--as evidence that fintech could ultimately fulfill the hype.

The Basel Committee said fintech holds the potential to produce simpler products for consumers, to help them better control spending and budgeting, to reduce transaction costs, to provide greater convenience and efficiency, and to expand access to financial services to under-served consumers.

Showing fintech may be on a path to becoming commonplace, the study said the current pace of implementation is arguably faster for past innovations and there are clear signs that the pace of adoption has also increased.

“ATM adoption occurred over two decades, while internet banking and mobile banking have taken root over faster,” said the report.

The group added a major force propelling the adoption of fintech faster than previous innovations is the existence of a generation of consumers that wants as much high tech in their lives as they can get.

But as a warning, the report said fintech innovations outside the regulated financial industry could expose consumers to “unwarranted” cybersecurity risks.

The bottom line, the Basel Committee said, is that fintech will likely force  banks to change current operating models to win the battles for customers.