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Economics professor: The biggest global risk with greater digital disruption in finance

Lianna Brinded
Head of Yahoo Finance UK
Dr Keyu Jin, associate professor of economics at the London School of Economics. Photo: World Economic Forum

When we think about tech disruption it’s usually seen in a positive light. From making banking faster and more accessible, to empowering consumers to make money management decisions that fit their lifestyles, the financial industry is evolving.

But speaking to delegates at the World Economic Forum in Davos, Switzerland, in a session titled ‘Shaping the Future of Financial and Monetary Systems,’ Dr Keyu Jin, associate professor of economics at the London School of Economics, highlighted one of the main issues that tech disruption fosters for finance — stability.

“It’s been 10 years since the financial crisis and there will be another one. We need to think about financial stability and will digital services help that,” she said.

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“There are several problems, there is a lack of country coordination [on stability models] and the developed countries have a zero-interest rate phenomenon, which is fuelling financial instability. There’s also a chronic lack of aggregate demand. When there was the last financial crisis, the US Fed had central swap lines — emerging markets (despite having 50% of the world’s GDP) were not included.

“We need coordination as the current environment is not looking very good.”

More than 3,000 guests are attending Davos 2020 throughout this week. “Stakeholders for a cohesive and sustainable world” is the official theme.

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In February, the Financial Stability Board (FSB) published a report, entitled FinTech and market structure in financial services, that warned of the risks associated with greater fintech market developments.

It said that “technological innovation holds great promise for the provision of financial services, with the potential to increase market access, the range of product offerings, and convenience while also lowering costs to clients.”

But also warned that “at the same time, new entrants into the financial services space, including FinTech firms and large, established technology companies (‘BigTech’), could materially alter the universe of financial services providers.

“Greater competition and diversity in lending, payments, insurance, trading, and other areas of financial services can create a more efficient and resilient financial system. However, heightened competition could also put pressure on financial institutions’ profitability and this could lead to additional risk taking among incumbents in order to maintain margins.”