Fintech: Capturing the Benefits, Avoiding the Risks
IMF Blog, June 20, 2017
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- Fintech: Capturing the Benefits, Avoiding the Risks
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Bibliographic details
- Authors: Christine Lagarde
- Published: June 20, 2017
Overview and context
- Author: Christine Lagarde
- Publication date: June 20, 2017
- IMF staff paper referenced: Fintech and Financial Services: Initial Considerations
- Core premise: Financial technology (Fintech) could make cross-border payments and transactions as simple as sending an email, affecting consumers and businesses globally.
Definition and key technologies
- Fintech is described as the collection of new technologies whose applications may affect financial services, including:
- artificial intelligence
- big data
- biometrics
- distributed ledger technologies such as blockchains
Promised benefits and use cases
- Fintech offers the promise of faster, cheaper, more transparent and more user-friendly financial services for millions around the world.
- Specific opportunities highlighted:
- Artificial intelligence combined with big data could automate credit scoring, so that consumers and businesses pay more competitive interest rates on loans.
- “Smart contracts” could allow investors to sell certain assets when pre-defined market conditions are satisfied, enhancing market efficiency.
- Mobile phones combined with distributed ledger technology could enable peer-to-peer payments that bypass banks, simplifying cross-border purchases (example: ordering tea leaves from abroad could become as easy as paying for a cup of tea next door).
Structural implications for financial intermediation
- Intermediaries common to financial services (banks, firms specialized in messaging services, correspondent banks clearing and settling transactions across borders) will face significant competition.
- New technologies such as identity and account verification could lower transaction costs and increase counterparty information, making middlemen less relevant.
- Possible evolution: existing intermediaries may be pushed to specialize and outsource well-defined tasks to technology companies, possibly including customer due-diligence.
Risks and challenges
- Potential misuse: new technologies could become tools for fraud, money laundering and terrorist financing.
- Consumer protection risks: potential compromises of consumer identities.
- Financial stability risks: new sources of instability could arise as services become increasingly automated.
- Legal ambiguity: the need to clarify the legal status and ownership of digital tokens and assets.
Regulatory and policy recommendations
- Reimagine oversight:
- Shift focus from exclusively well-defined entities (banks, insurance companies, brokerage firms) to include attention on specific services regardless of who offers them.
- Implement rules to ensure sufficient consumer safeguards, including privacy protection, and to guard against money laundering and terrorist financing.
- Strengthen international cooperation:
- Recognize that advances in technology know no borders and coordinate to prevent networks from moving to less regulated jurisdictions.
- Clarify legal status and ownership of digital tokens and assets through international dialogue and rulemaking.
- Preserve regulation’s role:
- Maintain regulation as an essential safeguard to build trust in the stability and security of networks and algorithms.
- Leverage the IMF’s platform:
- Use the IMF’s fully global membership to serve as a platform for discussions among the private and public sectors on the rapidly evolving topic of Fintech.
Strategic conclusion
- Adapting regulatory frameworks and oversight is presented as both possible and necessary to ensure that the promise of Fintech is enjoyed by everybody.
Source: IMF blog post "Fintech: Capturing the Benefits, Avoiding the Risks" by Christine Lagarde, June 20, 2017.
Content in this bundle
- 金融科技：获取收益，避免风险; IMF博客; 2017 年6 月19 日
- フィンテック: その恩恵を享受し、リスクを回避するには; クリスティーヌ・ラガルド; IMF ブログ2017年6月19日掲載
- Финтех: воспользоваться выгодами, избежать рисков; Кристин Лагард; 19 июня 2017 года
- Tecnología financiera: Captar los beneficios, evitar los riesgos
