Financial Intermediation and Technology: What’s Old, What’s New?

IMF Working Papers, August 7, 2020

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Technological dimensions analyzed:
- Information innovations: data collection and processing.
- Communication innovations: relationships and distribution.
Key dynamics:
- Historic trends toward increased use of hard information and less in-person interaction are accelerating rapidly.
- The combination of data abundance and artificial intelligence represents a recent innovation with material implications for intermediation.
- The rise of digital platforms changes the customer interface and distribution, enabling new intermediation structures.
Impacts on traditional banking:
- New communication channels can lead to vertical and horizontal disintegration of the traditional bank business model.
- Specialized providers of financial services can take over activities that do not rely on access to balance sheets.
- Platforms can interject themselves between banks and customers, altering distribution and relationship dynamics.
Limitations and caveats:
- The paper discusses limitations to the challenges posed by technology and platforms (details in the full working paper).

Regulatory and policy focus areas highlighted:
- Addressing the implications of disintermediation driven by communication innovations.
- Considering the effects of data abundance and artificial intelligence on market structure and competition.
- Assessing how platforms' intermediation between banks and customers affects consumer protection, market power, and financial stability.
Suggested orientation for policymakers (as discussed):
- Evaluate how specialized providers and platforms alter the scope of bank activities that rely on balance-sheet access.
- Consider policies that account for reduced in-person interaction and increased reliance on hard information.