## TECH MEETS FINANCE

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### Disruption in payments
- Payments are the gateway to financial services; transaction accounts often prerequisite for credit, insurance, savings, and investment.
- Fast or instant payment systems have taken off in many countries, especially emerging markets, offering real-time (or nearly real-time) transfers between end users.
- Fast, 24/7 payments are provided by fintechs, big techs, and existing banks using smartphone apps and QR codes, and can operate on lower-tech phones.
- Public infrastructures have driven notable successes:
  - Brazil’s Pix (introduced November 2020): “over 90 percent of Brazilian adults use the service for daily retail payments, such as food or travel, and even for recurring payments like utility bills.”
  - India’s Unified Payments Interface (UPI): operates on a platform promoting services by incumbent banks, fintechs, and big techs.
  - Thailand’s PromptPay and Costa Rica’s SINPE Móvil cited as similar successes.
- Fragmentation and “walled gardens” limit interoperability in some markets (example: Venmo vs Zelle in the US; Alipay vs WeChat Pay in China; Yape vs Plin in Peru); policy intervention has been needed to make systems interoperable.
- Net effects:
  - Users obtain cheaper, faster payments supporting financial resilience and higher economic growth.
  - Disruptors improve access and push incumbents to enhance offerings.
  - Progress in access to payment accounts resulted from interplay of public sector infrastructures and private innovation and brought hundreds of millions into the financial system worldwide.

### A digital credit metamorphosis
- New lending platforms (crowdlending and digital credit platforms) grew quickly using alternative data for credit scoring and streamlined digital processes.
- Big tech credit expanded rapidly; examples include merchant lending by Amazon in the US and Alibaba in China. The volume of big tech credit “boomed.”
- Fintech and big tech lending narrowed gaps in credit markets and enhanced financial inclusion in some cases:
  - Mercado Pago in Argentina supported small merchants spurned by banks.
  - In China, big tech credit was less sensitive to home prices than bank credit, potentially reducing the importance of collateral.
  - In the US, fintech small business lenders targeted areas with high unemployment and bankruptcies where banks are less likely to lend.
- Banks responded by changing business models to look more like platforms and using alternative data; some challengers obtained banking licenses (examples: Revolut, Nubank).

### Crypto and DeFi
- Global crypto adoption is on the rise again, largely for speculative investment purposes, and supported politically in some countries, despite a long history of volatility.
- Crypto and DeFi promised decentralization but markets remain largely intermediated and often centralized due to exchanges, traditional banks, and investment funds entering the market.
- Unbacked crypto assets have limited usability because of extreme volatility.
- Stablecoins:
  - Tie value to fiat currencies; largest stablecoins are issued by centralized entities holding assets such as US Treasury bills and bank deposits.
  - Stablecoins are associated with risks: widespread fraud, scams, money laundering, and terrorism financing.
  - Stablecoins “fall short of providing necessary elasticity in the monetary system.”
  - “More than 98 percent of stablecoins by value are tied to the US dollar,” posing risks to monetary sovereignty in many jurisdictions.
- Potential positive functionalities:
  - Programmability and tokenization could improve existing functions and enable new ones within a monetary system centered on central banks and commercial banks interacting with clients.
  - In cross-border payments, tokenization could enable messaging, reconciliation, and asset transfer in a single action, allowing for simultaneous (“atomic”) settlement and enhanced collateral management—improvements for capital markets and a foundation for a future tokenized financial system.
- Systemic risk concerns:
  - Shocks from the crypto sector could spill over to the traditional financial system, “potentially even posing risks to the US Treasury market.”

### Public policy to guide innovation
- Radical ideas are necessary but not sufficient; harnessing benefits requires:
  - Public infrastructures,
  - Sound regulation,
  - Practical experimentation in public and private sectors.
- Proactive public authorities facilitated major breakthroughs (examples: UPI in India, Pix in Brazil), even when incumbents were initially reluctant.
- Public–private coordination is needed to steer digital technologies toward broadly beneficial applications and to lay a solid foundation for prosperity.
- Example of coordination: Project Agorá brings together central banks and commercial banks to explore a unified ledger to leverage tokenization for cross-border payments.

### Key findings and policy implications (bulleted)
- Innovation has often shifted from being a substitute for incumbents to complementing them, increasing competition and diversity in financial intermediation.
- Fast payments and public infrastructures can greatly expand financial inclusion (hundreds of millions brought into the financial system).
- Interoperability is crucial; without it, private fast-payment “walled gardens” fragment markets and limit benefits.
- Fintech and big tech credit can improve access, target underserved regions, and alter collateral dependence, but effects vary widely across countries.
- Crypto and stablecoins present functional innovations (programmability, tokenization) yet carry significant risks (volatility, fraud, money laundering, monetary sovereignty concerns).
- Policy mix should include:
  - Designing and operating public payment infrastructures to promote interoperability and inclusion.
  - Regulating crypto and stablecoins to mitigate financial stability, illicit finance, and monetary sovereignty risks.
  - Facilitating experimentation (public and private) and coordinated projects (e.g., unified ledgers) to test tokenization benefits for cross-border payments and capital markets.

*Source: “TECH MEETS FINANCE” (Iñaki Aldasoro, Jon Frost, Vatsala Shreeti), F&D, SEPTEMBER 2025.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/frost.pdf_