Fintech Finance and Financial Fragility

Financial Technology (Fintech) is evolving quickly within the financial system, giving rise to new forms of lending and opening up a version of shadow banking. This is particularly true in China. While Fintech finance and shadow banks can improve a banking system, they can also become new sources of fragility. This paper aims to provide a theoretical analysis of risks of Fintech finance to financial sectors, with particular examples for China. These risks are most likely to be important when Fintech moves beyond its technological focus and performs financial intermediation, particularly bank-like, functions. We provide implications for the evolution of Fintech finance as new sources of payments and funding. We propose “ring-fencing” as an approach to mitigate risks from contagion.