The combination of rapid growth and increasing importance of digital banks and FinTechs entail system-wide risks for financial stability as new digital platforms grow aggressively into risky business segments, the International Monetary Fund said.
Although FinTechs can broaden consumers' access to financial services, reduce costs and increase efficiency, their rapid growth in “systemic importance” is also creating regulatory challenges, the fund in Washington said in a blog on Wednesday.
“Such changes also raise the stakes for regulators and supervisors — while most individual FinTech firms are still small, they can scale up very rapidly across both riskier clients and business segments than traditional lenders,” Antonio Garcia Pascual, deputy chief at the IMF’s Global Markets Analysis division and Fabio Natalucci, deputy director at the fund’s Monetary and Capital Markets department, said in the blog post.
“The risk management systems and overall resilience of most neo banks remain untested in an economic downturn.”
Demand for digital payments and other FinTech services has grown during the pandemic as more people use online banking services to transfer money and pay for e-commerce transactions.
The global FinTech market is expected to reach $334 billion by 2026, growing at a compound annual rate of more than 25 per cent between 2022 and 2027, research consultancy Market Data Forecast said in its FinTech report.
Globally, digital payments are expected to grow to $8.26 trillion by 2024, from $4.4tn in 2020, Statista says.
Banks, which directly compete with FinTechs for business, are also aggressively investing in their smaller rivals or creating their own digital arms to capitalise on growing demand for digital banking services.
In the Middle East, the FinTech sector is growing at a 30 per cent annual compound annual rate. By the end of this year, more than 800 FinTech companies operating in segments including payments, InsureTech and cyber security are expected to raise more than $2bn in venture capital funding, estimates by the Middle East Institute suggest.
Mena start-ups received $2.6bn in venture capital investments last year and FinTech was the only sector to have recorded more than 100 deals, accounting for 17 per cent of total capital raised last year, data platform Magnitt said.
The IMF said despite growing importance of FinTech platforms and neo banks in their local markets, these platforms are more exposed than their traditional counterparts to risks from consumer lending, which usually has fewer buffers against losses as it tends to be more uncollateralised.
Their exposure also extends to higher risk-taking in their securities portfolio, as well as greater liquidity risks, specifically in terms of liquid assets held relative to their deposits as they tend to be lower than what traditional banks hold, IMF said in its Global Financial Stability report.
“FinTech companies not only take on risks themselves but also exert pressure on incumbents,” the IMF said.
“The case study of the US mortgage market presents evidence of a significant negative impact of competitive pressure from FinTechs on the income of traditional banks.”
The extraordinary growth in the past two years of financial intermediation based on crypto assets, known as decentralised finance, or DeFi, can potentially offer higher efficiency and investment opportunities.
However, DeFi is increasingly becoming linked with traditional financial intermediaries and while its market size is still relatively small, “unregulated DeFi poses market, liquidity and cyber risks against a backdrop of legal uncertainties”, the IMF said.
To mitigate risk, policies that target both FinTech companies and incumbent banks proportionately are needed.
“This way, the opportunities that FinTech offers are fostered, while risks are contained,” IMF officials said in the blogpost.
For neo banks, more robust capital, liquidity and operational risk management requirements in proportion to their risk levels should be implemented. Greater focus on the health of less technologically advanced banks is also needed as their existing business models may be “less sustainable over the long term”.
“As more financial-services activity moves from regulated banks to entities and platforms with little or no oversight, so do the associated risks,” IMF officials said.
The specs
Engine: 1.5-litre 4-cylinder petrol
Power: 154bhp
Torque: 250Nm
Transmission: 7-speed automatic with 8-speed sports option
Price: From Dh79,600
On sale: Now
UAE currency: the story behind the money in your pockets
11 cabbie-recommended restaurants and dishes to try in Abu Dhabi
Iqbal Restaurant behind Wendy’s on Hamdan Street for the chicken karahi (Dh14)
Pathemari in Navy Gate for prawn biryani (from Dh12 to Dh35)
Abu Al Nasar near Abu Dhabi Mall, for biryani (from Dh12 to Dh20)
Bonna Annee at Navy Gate for Ethiopian food (the Bonna Annee special costs Dh42 and comes with a mix of six house stews – key wet, minchet abesh, kekel, meser be sega, tibs fir fir and shiro).
Al Habasha in Tanker Mai for Ethiopian food (tibs, a hearty stew with meat, is a popular dish; here it costs Dh36.75 for lamb and beef versions)
Himalayan Restaurant in Mussaffa for Nepalese (the momos and chowmein noodles are best-selling items, and go for between Dh14 and Dh20)
Makalu in Mussaffa for Nepalese (get the chicken curry or chicken fry for Dh11)
Al Shaheen Cafeteria near Guardian Towers for a quick morning bite, especially the egg sandwich in paratha (Dh3.50)
Pinky Food Restaurant in Tanker Mai for tilapia
Tasty Zone for Nepalese-style noodles (Dh15)
Ibrahimi for Pakistani food (a quarter chicken tikka with roti costs Dh16)
The five pillars of Islam
1. Fasting
2. Prayer
3. Hajj
4. Shahada
5. Zakat
Top goalscorers in Europe
34 goals - Robert Lewandowski (68 points)
34 - Ciro Immobile (68)
31 - Cristiano Ronaldo (62)
28 - Timo Werner (56)
25 - Lionel Messi (50)
*29 - Erling Haaland (50)
23 - Romelu Lukaku (46)
23 - Jamie Vardy (46)
*NOTE: Haaland's goals for Salzburg count for 1.5 points per goal. Goals for Dortmund count for two points per goal.
Day 5, Abu Dhabi Test: At a glance
Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.
Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.
The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.
The five pillars of Islam
The Dark Blue Winter Overcoat & Other Stories From the North
Edited and Introduced by Sjón and Ted Hodgkinson
Pushkin Press
Mica
Director: Ismael Ferroukhi
Stars: Zakaria Inan, Sabrina Ouazani
3 stars
Killing of Qassem Suleimani
UAE currency: the story behind the money in your pockets
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
Youth YouTuber Programme
The programme will be presented over two weeks and will cover the following topics:
- Learning, scripting, storytelling and basic shots
- Master on-camera presence and advanced script writing
- Beating the algorithm and reaching your core audience
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
Mohammed bin Zayed Majlis
Sinopharm vaccine explained
The Sinopharm vaccine was created using techniques that have been around for decades.
“This is an inactivated vaccine. Simply what it means is that the virus is taken, cultured and inactivated," said Dr Nawal Al Kaabi, chair of the UAE's National Covid-19 Clinical Management Committee.
"What is left is a skeleton of the virus so it looks like a virus, but it is not live."
This is then injected into the body.
"The body will recognise it and form antibodies but because it is inactive, we will need more than one dose. The body will not develop immunity with one dose," she said.
"You have to be exposed more than one time to what we call the antigen."
The vaccine should offer protection for at least months, but no one knows how long beyond that.
Dr Al Kaabi said early vaccine volunteers in China were given shots last spring and still have antibodies today.
“Since it is inactivated, it will not last forever," she said.
KILLING OF QASSEM SULEIMANI
Zayed Sustainability Prize
More on animal trafficking
More on Quran memorisation:
The biog
Occupation: Key marker and auto electrician
Hometown: Ghazala, Syria
Date of arrival in Abu Dhabi: May 15, 1978
Family: 11 siblings, a wife, three sons and one daughter
Favourite place in UAE: Abu Dhabi
Favourite hobby: I like to do a mix of things, like listening to poetry for example.
Favourite Syrian artist: Sabah Fakhri, a tenor from Aleppo
Favourite food: fresh fish
Key figures in the life of the fort
Sheikh Dhiyab bin Isa (ruled 1761-1793) Built Qasr Al Hosn as a watchtower to guard over the only freshwater well on Abu Dhabi island.
Sheikh Shakhbut bin Dhiyab (ruled 1793-1816) Expanded the tower into a small fort and transferred his ruling place of residence from Liwa Oasis to the fort on the island.
Sheikh Tahnoon bin Shakhbut (ruled 1818-1833) Expanded Qasr Al Hosn further as Abu Dhabi grew from a small village of palm huts to a town of more than 5,000 inhabitants.
Sheikh Khalifa bin Shakhbut (ruled 1833-1845) Repaired and fortified the fort.
Sheikh Saeed bin Tahnoon (ruled 1845-1855) Turned Qasr Al Hosn into a strong two-storied structure.
Sheikh Zayed bin Khalifa (ruled 1855-1909) Expanded Qasr Al Hosn further to reflect the emirate's increasing prominence.
Sheikh Shakhbut bin Sultan (ruled 1928-1966) Renovated and enlarged Qasr Al Hosn, adding a decorative arch and two new villas.
Sheikh Zayed bin Sultan (ruled 1966-2004) Moved the royal residence to Al Manhal palace and kept his diwan at Qasr Al Hosn.
Sources: Jayanti Maitra, www.adach.ae
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Killing of Qassem Suleimani
THE SPECS
Touareg Highline
Engine: 3.0-litre, V6
Transmission: 8-speed automatic
Power: 340hp
Torque: 450Nm
Price: Dh239,312
The biog
Year of birth: 1988
Place of birth: Baghdad
Education: PhD student and co-researcher at Greifswald University, Germany
Hobbies: Ping Pong, swimming, reading
UAE currency: the story behind the money in your pockets
Mohammed bin Zayed Majlis
More coverage from the Future Forum
UAE currency: the story behind the money in your pockets
If you go
Flights
Emirates flies from Dubai to Phnom Penh with a stop in Yangon from Dh3,075, and Etihad flies from Abu Dhabi to Phnom Penh with its partner Bangkok Airlines from Dh2,763. These trips take about nine hours each and both include taxes. From there, a road transfer takes at least four hours; airlines including KC Airlines (www.kcairlines.com) offer quick connecting flights from Phnom Penh to Sihanoukville from about $100 (Dh367) return including taxes. Air Asia, Malindo Air and Malaysian Airlines fly direct from Kuala Lumpur to Sihanoukville from $54 each way. Next year, direct flights are due to launch between Bangkok and Sihanoukville, which will cut the journey time by a third.
The stay
Rooms at Alila Villas Koh Russey (www.alilahotels.com/ kohrussey) cost from $385 per night including taxes.
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