The IMF intends to keep innovation in the finance sector in check. Especially fast-growth fintech firms are under the gun and will face more regulatory scrutiny. These companies challenge the current status quo, prompting the IMF to push regulators into action.
Fast-growth Fintechs And The IMF
It isn’t too surprising to see the IMF go after fast-growth fintechs all of a sudden. The institution opposes any form of finance threatening the currently established institutions. According to the International Monetary Fund, fast-growing fintechs threaten less technologically advanced banks. That is an interesting statement in the year 2022. Any bank that isn’t technologically advanced by now has no place in the finance industry.
Moreover, the IMF wants regulators to “crack down” on these fast-growth fintechs before they can affect the current status quo even further. The institution acknowledges most fintechs are small, but they can scale up incredibly quickly. Moreover, they seem to favor riskier clients and business segments, introducing new risks and problems.
The IMF report authors comment:
“This combination of fast growth and the increasing importance of fintech financial services for the functioning of financial intermediation can come with system-wide risks. These factors also create a challenge for regulators: the risk management systems and overall resilience of most neobanks remain untested in an economic downturn.”
For now, it remains unclear if regulators will take action. The IMF’s comments will not fall on deaf ears, although one must not stifle innovation either. Additionally, it is not bad when traditional banks see their profitability decline. That may force them to offer better services at more competitive prices, benefiting consumers rather than the management. It may be time for the IMF to get its priorities in order rather than desperately cling to the current broken system.