Fintech and the Digital Transformation of Financial Services: Implications For Market Dynamics and Public Policy

Information asymmetries and other economic frictions, and economies of scale and scope
are some of the economic forces and types of activities that contribute to the emergence of financial
intermediaries and shape of the market. Though technology advancement has always been closely
coupled with financial services, the recent swells of digital advancements have had a major
contribution to the connectivity of systems, computing power, and data access. These innovations
have reduced the transaction costs and facilitated new forms of business, which resulted in the
introduction of specialized companies.
With ease in the exchange of information and reduction in the cost of transaction made possible by
technology, the process of financial services production can be even more disaggregated. This has
been possible to un-bunch the traditional financial services which has made the specialized entities
to provide consumers with the opportunity to choose and assemble desired products. However,
there are still some underlying economic drivers in the digital sphere. Economies of scale, domains,
and network effects have been influencing financial services, including the domain of customer
acquisition, financing, compliance, data, and trust-based capital. In addition, consumer search and
product assembly expenses remain, and this supports incentives of re-bundling and creating
competitive advantages to large, multi-service companies, such as large technology firms moving
into finance out of related industries.
Digitization of financial services raises