FinTech and financial instability. Is this time different?

We study the development of FinTech, defined as a set of innovations and an economic sector that apply recently developed digital technologies to financial services, with particular focus on payment and lending platforms, and digital asset management and online trading apps. We use mixed methods, including a theoretical exercise on the main balance sheet interactions involved in FinTech banking, and empirical insights from fieldwork in Latin America and the United States. Our analysis corroborates previous literature identifying several systemic risks in FinTech payment and lending platforms. These include the enhanced risk of a bank run, the increase in liquidity risk for incumbent banks, the fueling of precarious lending, and the potential compromise in the efficacy of monetary policy. Our discussion of online asset management and trading apps also highlights the risk of enhanced volatility in financial markets due to the increase in the participation of low-income and inexperienced investors. We observe that while the FinTech sector is still small in size, it already contains seeds of financial instability which should be all-too-familiar from recent history.