EU Report: FinTech and cryptocurrencies vs. banks and fiat money

The European Parliament Committee on Economic and Monetary Affairs has been investigating the future of the economic system, given the rise of FinTech companies and cryptocurrencies. Just this month, their findings were released in a report called “Competition Issues in the Area of Financial Technology (FinTech)”. The report reveals a quite nuanced understanding of the cryptocurrency market, as well as an understanding of the possible implications for the future.

Cryptocurrencies are acknowledged as disruptive

The EU is well aware that the emergence of cryptocurrencies like Bitcoin will have a massive impact on the current financial system. One of the main takeaways of the report is that FinTech companies are quite simply more agile than the big banks:

“In this environment, new agents, particularly tech start-ups, are generally able to offer financial services for lower costs and at a higher efficiency than the incumbents, due to the lack of legacy infrastructures or organizations and the ability to better take advantage of innovations. It is also generally understood that they can offer better user experiences, which poses significant challenges to other agents, especially traditional financial service providers.“

Cryptocurrencies may not be subject to the same regulations

In addition to being more flexible, faster, and cheaper than traditional financial institutions, the FinTech companies are also able to avoid some of the regulations restricting banks. This is due to the permission-less nature of the digital ledger technology:

“If the cryptocurrency DLT is open, or permission-less, everyone can develop any of the activities without requiring any market entry authorization, even leaving the system without any regulation.”

This would mean that in addition to offering a cheaper, faster, and more secure service than the banks, the FinTech companies dealing with cryptocurrency would also not face the same restrictions. That could make the playing field very uneven, and thus skew competition.

Banks will have to adapt to the new economic future

Rather than working towards placing restrictions on blockchain companies in the same way as they do on the banking sector, EU sees a better solution to the issue. Letting central banks issue their own form of cryptocurrency would let them compete on an equal footing with the FinTech companies.

“A potential inadequacy of traditional competition policy to address competition issues in the cryptocurrency markets can be found, suggesting direct public participation through a central-bank digital currency as a remedy”

This could see the two kinds of organizations work together, rather than being in direct competition with each other. Banks could draw upon the innovation created within the FinTech industry, and the FinTech companies would be paid handsomely for their contribution.

Europe leads the way in the cryptocurrency space

Although cryptocurrencies is a worldwide phenomenon, with many players in the Americas, Middle East, and Asia, Europe is ahead in terms of the numbers. When it comes to innovation, ICOs, cryptocurrency exchanges, and digital wallets, Europe is ahead of the rest of the world, according to the EU report:

“Europe leads, at the international level, the supply of wallet and exchange services, with 42% and 37% in terms of number of players.”


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