Banking institutions will get “left behind” if they don’t evolve as big tech companies continue disrupting the financial system, the latest research from the International Monetary Fund (IMF) says.
“The Rise of Digital Money,” published July 15 and written by IMF authors Tobias Adrian and Tommaso Mancini-Griffoli, said cash and bank deposits are going to face increasing competition, CNBC reports.
Big tech companies and FinTech startups could “even surpass” the most common forms of money, the paper said, although the authors also indicated banks are “unlikely to disappear.”
“Some will be left behind no doubt. Others will evolve, but must do so quickly,” the authors said in the research.
The research paper comes at a time when bankers and policymakers are still figuring out how tech companies will affect banking and the overall payments system.
“Policymakers should be prepared for some disruption in the banking landscape,” the authors said in the paper.
The IMF paper points out that the ability to raise interest rates on deposits is one advantage traditional financial institutions have over tech competitors. Facebook’s Libra, for instance, has said it will not offer any interest to users.
But large tech firms and FinTech startups are “experts at delivering convenient, attractive, low-cost and trusted services to a large network of customers,” the authors said.
The role banks will play in the digital currency landscape is something the IMF has been researching. IMF Director Christine Lagarde issued a warning in June about the impact artificial intelligence (AI) could have on global financial systems.
Use of Big Data and AI increases big tech’s dominance in the mobile payments market, which could result in policymakers around the world rethinking how they regulate the banking system, Lagarde has said.
Facebook’s Libra announcement has been met with skepticism from many officials around the world. In recent congressional testimony, Federal Reserve Chairman Jerome Powell said Libra raises “serious concerns” around privacy, money laundering, consumer protection and financial stability.