NFU Blog

The changing landscape in financial services

The rapid digital development of financial services during the Covid-19 pandemic have enabled Fintech and Big Tech companies to strengthen their position in the financial markets says a new report from the Financial Stability Board. What implications might this have for the financial markets structures and what approach should be taken towards this development?

Last week, the Financial Stability Board (FSB) released a report discussing the changes in the financial market structures during the Covid-19 pandemic and its implications on the financial stability. The rapid digitalisation of financial services during the last two years have truly changed the financial market. One of the largest developments is that tech actors such as Fintech companies and Big tech (Google, Apple, Meta and Amazon) have surfed this digital wave which have enabled them to strengthen their positions in the sector.

NFU are also following the rapid digital development of the financial sector closely, and share the analysis with FSB that the pandemic have accelerated the pace. In earlier NFU Blogs we have written about the risks and benefits of Big Tech’s entry into finance, and will soon release a report from our joint European project on Fintech. NFU are monitoring this development closely, more on this can be found later in this analysis.

The report is focusing on the developments in financial markets during the pandemic by going through trends in market structure, the drivers of digitalisation during the pandemic, the benefits and risks of changes in market structures, and the regulatory changes during the pandemic. The full report can be found here: FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability (

Developments during the pandemic – Financial innovations thrived

The largest developments in the financial services sector during the pandemic was the acceleration in financial innovations. Both new and traditional financial actors had to adapt rapidly to a shifting landscape. “COVID-19 hastened several trends already underway, including the use of digital payments and changes in the way retail customers and vendors buy and sell goods. Large swathes of economic activity became dependent on technology, lending an advantage to firms with established platforms, digital strategies, and deep customer bases”[1].

This development has mostly been in favour of Big Tech companies as people turned to mobile/app and platform solutions. For Fintech, the pandemic had both negative effects such as lower investments, but also positive where more of them went into collaboration with traditional financial institutions. For traditional financial institutions, the effects of the pandemic depended a lot on the level of digitalisation they had gone through before the pandemic. Those that had already invested in scalable digital solutions (API, Cloud solutions, data models) did manage the pandemic period in the best way. The pandemic has also shown the different realities of large and smaller companies where small companies have had bigger difficulties investing in the necessary digital transformation.

The development has been pushed by drivers both in supply and demand. On the supply side the largest driver has been the restrictions connected to the pandemic. When looking at why Big tech and Fintech have been flourishing in this period, the supply drivers have been the level of digital development before the pandemic, that there have been in some areas less regulation on these actors compared to traditional actors, robust business lines and the fact that they have a wide client network. On the demand side, there has been a demand for easier and digital payment solutions, the risk of getting infected raised the need for lowering physical interactions combined with a wide global trend towards convenience in financial solutions. All these factors favoured digital solutions.

Changes in market structures – benefits and risks

These changes in market structures comes with both benefits and risks. On the benefit side, use of innovative digital tech in finance can lead to lower costs and more efficiency in financial services. Competition, diversity in actors and services, and efficiency can increase financial stability. Financial innovations can also foster financial inclusion by providing access to financial services to more people.

The rapid development does not come without risks. FSB warns that it can be difficulties to assess risks to resilience and financial stability, as Big Tech and Fintech actors might fall outside the traditional financial regulation. Many traditional financial institutions join forces or outsource activities to Big Tech or Fintech companies to keep up with the digital demands. “These kinds of often complex corporate structures can make it difficult for supervisors and regulators to gauge potential risks”[2]

Another risk is directly connected to that of the system becoming more and more reliant on technological solutions. Cyber security risks increase both connected to malicious activities and operational problems. These risks can lead to disruptions in financial services such as payment services. Furthermore, competition from Big Tech and Fintech might lead traditional financial institutions to increase their risk taking to make sure to protect market shares.

Another vulnerability, concentrated to Big Tech moving into financial services, is connected to market concentration. A growing service within financial services is cloud services, and today almost all global cloud services are provided by four Big Tech companies. “Cloud services may introduce access to new applications, facilitate the use of AI and machine learning, and potentially allow for cost efficiencies and some benefits to resilience”[3]. As financial companies become more reliant on big data there is a growing need for efficient cloud solutions. This concentration might have the effect that operational failure or cyber attacks on these actors can affect the whole system.

The Financial Stability Board lists three possible scenarios for the post-pandemic development of financial services and if the development continues in digital innovations, it might have structural changes to the system.

  1. The development continues where more Fintech enter financial markets taking over market shares from traditional financial institutions in niche services where the traditional actors have problems to innovate.
  2. Lower margins and a larger need to innovate and invest in digital solutions might lead to fewer large traditional financial institutions.
  3. Either more and broader entry by Big Tech into financial services or more partnership between Big Tech and traditional financial institutions.

The first scenario might lead to more actors providing financial services and that more financial activities might take place outside of the regulated sphere. Further, scenarios two and three might lead to a financial landscape with a few major players that might be too-big-to fail, creating market concentration and an uneven playing field. All scenarios are dependent on further developments in digital solutions on the internet that will increase the risks of cyber threats.

These developments have not gone by unnoticed by regulators and supervisors. At the European level, the Commission has put forward an action plan that is intended to both address the risks and create a better system to unlock the opportunities with digital financial services. Parts of the Digital Finance strategy can also be seen as an important tool here. One important aspect to address for regulators have been to overlook digital and communications technology service providers that are critical to the financial sector. The newly proposal on Digital Operational Resilience Regulation (DORA) is key here, as it aims to monitor and address concentration risk and systemic risk that may arise from critical third-party provision of ICT services.

NFU analysis

The future of financial services and trends in the financial sector landscape are areas that we in NFU are following closely. The trends that FSB are pointing to in their report are trends that we see also in the Nordic context. The rapid digitalisation and innovation of financial services in the Nordic countries were possibly most notable in the area of payments where instant payments and contactless payments quickly were made possible during the pandemic.

Mobile payments are another large trend in payment solutions in the Nordics, mainly driven by Big Tech companies. Apple and Google Pay built into smart phones make payments even more convenient and are a good example, where traditional financial institutions and Big Tech are collaborating. As I elaborated on in a blog from 2021, Big Tech’s entry into financial services is more and more evident[4].

The development of Big Tech in finance, both their development in financial services and as service provider for traditional financial institutions are areas that NFU are following closely. We share the risks put forward by FSB of the possibility of creating too-big-to-fail and market concentration. Both this development and the fact that smaller actors have issues in following the digital development is challenging the level playing field in financial services. The discussion on cloud services and traditional financial services outsourcing of services to Big Tech companies is extra important to follow.

Looking at Fintech, NFU is currently running an EU financed project with UNI Europa Finance and University of Gothenburg on Fintech and its effects of the financial markets in Sweden, Denmark, Estonia and the Netherlands. The project is also analysing employment relations in these companies. The project will conclude with a report in May.

When Fintech started to become serious actors in the financial markets, many stakeholders warned, that there might be disruption on the market and many traditional financial institutions saw them as potential competitors. From a Nordic view, a lot of these developments have not happened. Rather than disruption and competition, Fintech and traditional actors have created a relationship based on interdependence and collaboration. Many Nordic Fintech companies have also been able to scale up and become providers of a wide range of financial services (example Lunar and Klarna).

Looking into the future, I think it is still important to follow Fintech, but more in relation to the traditional actors and how they continue to grow into the financial landscape. However, the scenarios that are raised by FSB are possibilities. We see that traditional financial institutions have been digitalising some areas and services, but will they be able to digitalise further or will they need to outsource?

When discussing Big Tech, I believe that the risks raised by FSB are important not to overlook. The risks to the level playing field, of market concentration and more dependency from incumbents to their services have the potential to pose threats to the system. I believe that the largest risk with Big Tech in finance is not that they will move fully into the market, there are no signs of that and if these companies truly wanted this, nothing should have stopped them earlier. Rather, the dependency from traditional (and Fintech) actors of outsourcing cloud services and other ICT technologies to Big Tech is the big risk to follow in the future. This is creating market concentration and dependency that might create vulnerabilities in the system. Another question is what and how these companies store and use the (in many ways sensitive) data of the financial consumers.

The focus of the Commission to address these issues in DORA, but also in the DMA and Data act is the right way to go and will be important initiatives to follow during the coming years.

Simon Jernberg
Policy Advisor, NFU

[1] FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability (

[2]  FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability (

[3] FinTech and Market Structure in the COVID-19 Pandemic: Implications for financial stability (


[4] Big Tech in Finance | Nordic Financial Unions

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