Fintech—A Brave New World for the Financial Sector?

IMF Blog, March 21, 2017

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Technology is rapidly changing virtually every facet of society, including communications, business and government.
The financial world is at a critical juncture: the widespread adoption of new technologies, such as blockchain-based systems, offers many potential benefits but also gives rise to new risks, including risks to financial stability.
Key open questions highlighted:
- How exactly will these technologies change the financial world?
- Will banks be replaced by blockchain-based systems that facilitate peer-to-peer transactions?
- Will artificial intelligence reduce the need for trained professionals, and can smart machines provide better financial advice to investors?
Status of applications: Significant investment is going into fintech, but most real-world applications are still being tested.

Definition: Financial technology, or fintech, encompasses products, developers and operators of alternative financial systems.
Growth statistic: Fintech investment quadrupled from 2010 to 2015, to $19 billion annually.
Forms of fintech innovation cited:
- Peer-to-peer lending
- High-frequency trading
- Big data and robotics
Success stories and impacts:
- Cell phone-based banking in Kenya and China is bringing millions of previously “unbanked” people into the mainstream financial system.
- Virtual currency exchanges allow people in developing countries to transfer money across borders quickly and cheaply.

Criminal-finance risks:
- Cryptocurrencies like Bitcoin can be used to make anonymous cross-border transfers, increasing the risk of money laundering and terrorist financing.
- Need to define the legal status of a virtual currency, or digital token.
- Need to figure out how best to perform customer due diligence on virtual currency transfers.
Financial stability risks:
- The potential impact on financial stability from the entry of new types of financial services providers into the market is a medium-term concern.
Regulatory questions:
- Should new technologies—often driven by algorithms—be subject to the same type of regulation used in the past?
- Are new regulatory approaches needed for evolving technologies?
- Can the forces of innovation help reduce risks and maximize benefits?
Regulatory innovation examples:
- “Regulatory Laboratory” in Abu Dhabi
- “Fintech Supervisory Sandbox” in Hong Kong
- Purpose: promote innovation by allowing new technologies to be developed and tested in a closely supervised environment.

IMF activities:
- The IMF published a paper on virtual currencies (date unspecified in the source) focusing on regulatory, financial, and monetary implications.
- The IMF has broadened its focus to cover blockchain applications more generally.
- The IMF has established a High-level Advisory Panel of Leaders in Fintech to help understand developments in the field.
- The IMF expects to publish a new study on fintech in May.
Monitoring: The IMF is closely monitoring fintech developments.

The author invokes literary contrasts to frame fintech’s promise and perils:
- Aldous Huxley’s vision of a frightening future.
- Shakespeare’s line from The Tempest: “O wonder! How many goodly creatures are there here! How beauteous mankind is! O brave new world.”

Christine Lagarde — March 21, 2017 — IMFBlog (IMF, organization of 191 countries).

金融科技：金融业的“美丽新世界”？IMF博客; 2017年3月21日
- 金融科技：金融业的“美丽新世界”？IMF博客; 2017年3月21日 (Markdown version)
- 金融科技：金融业的“美丽新世界”？IMF博客; 2017年3月21日 (PDF)
フィンテック―金融セクターのすばらしい新世界？ : クリスティーヌ・ラガルド; IMF ブログ2017年3月21日掲載
- フィンテック―金融セクターのすばらしい新世界？ : クリスティーヌ・ラガルド; IMF ブログ2017年3月21日掲載 (Markdown version)
- フィンテック―金融セクターのすばらしい新世界？ : クリスティーヌ・ラガルド; IMF ブログ2017年3月21日掲載 (PDF)
Staff Discussion Note
- Staff Discussion Note (Markdown version)
- Staff Discussion Note (PDF)