and regulatory policies that are more “ incentive - compatible ”, in the sense that they are reinforced by market discipline and the profit - maximizing incentives of bank owners and managers. to the extent this can be achieved, and i believe we have taken some innovative steps in this direction, supervisory and regulatory policies will be both less burdensome and more effective. unbundling of financial services the unbundling of financial products is now extensive throughout our financial system. perhaps the most obvious example is the ever - expanding array of financial derivatives available to help firms manage interest rate risk, other market risks, and, increasingly, credit risks. derivatives are now used routinely to separate the total risk of more generic products into component parts associated with various risk factors. these components frequently are repackaged into synthetic products having risk profiles that mimic financial instruments in other markets. the synthetic products can then be resold to those investors most willing and able to bear the associated risks. another far - reaching innovation is the technology of securitization - - a form of derivative - - which has encouraged unbundling of the production processes for many credit services. securitization permits separate financial institutions to originate, service, fund, and assume the credit or market risks of a portfolio of loans or other assets. thus, a financial institution may specialize in those activities where it has particular expertise or other comparative advantages. for example, to reduce the costs of originating and securitizing certain types of household loans, the underwriting processes used by some financial institutions rely on highly automated credit - scoring models developed by third - party vendors. these models, in turn, typically are linked to huge databases on borrower characteristics maintained independently by national credit bureaus. numerous types of assets are now routinely securitized, including residential mortgages, commercial mortgages, auto loans, and credit card loans. in addition, medium - and large - size businesses, including some that are below investment - grade, regularly access the commercial paper market by securitizing their trade accounts or other assets. recently, securitization and credit - scoring are beginning to be applied to small business lending. these and other developments facilitating the unbundling of financial products have surely improved the efficiency of our financial markets. one benefit is greater economic specialization, as banks and other financial institutions are able to create market niches, for example, in cash management, investment management, or the origination or servicing of certain loans. moreover, by lowering the

tension between disruption of existing players and collaboration with them. many fintech players see themselves as disrupters. but there ’ s also a fair bit of collaboration that ’ s taking place. established financial institutions have been partnering or acquiring new, smaller players with new technologies. acquiring them either as a defensive mechanism or as a way of bringing disruptive technologies within their own organisation with the hope of strengthening what they offer customers. it ’ s hard to say how this will play out in the years to come – hard to say whether the disrupters will indeed disrupt the existing financial business in a significant way. i think it ’ s too early to say. in china, we have some major fintech players, they are no longer new now, those like alibaba and tencent. they have become established names. elsewhere it hasn ’ t made too much of a difference yet. it is early days. it ’ s entirely possible that some new fintech players will eventually make their mark as enduring brands in finance. but we are also likely to see the growing collaboration i have talked about, between established players and start - ups. it is not a zero sum game. and fintech ventures are also acting as a catalyst for existing players to reengineer legacy systems. but most importantly, fintech is promoting a shift from the traditional focus on products to a focus on customers. it ’ s about understanding their needs, and finding a way of delivering cheaper, or more convenient and more tailored services to the customer. the second tension is also important, and which we must be willing to manage. it ’ s the tension between allowing for experimentation in finance and preserving trust and credibility in our financial system. they are both important and we must be willing to manage the tension. there was i think, in the first wave of fintech, a certain breathlessness in the way which new businesses were coming up, and in the way which they were perceived and talked about. such as, in the ( peer - to - peer ) p2p lending platforms, where the name of the game was often to lend as quickly as you can, leveraging on investments in these fintech companies. the scene is now maturing. some of these new lending platforms in the us and elsewhere are now more concerned with the quality of loans they make. like banks, whose business is credit underwriting, they have to be good at both data analytics and judgment. bis central bankers ’ speeches most fintech ventures, globally