Seven Questions on Fintech
By Tommaso Mancini-Griffoli
The IMF recently published a pap er on the
potential effect s of fintech on the financial
sector and how regulation shoul d adapt:
“Fintech and Financial Servi ces: Initial
Considerations,” co-authored by Dong He ,
Ross Leckow, Vikram Haksar, Tommaso
Mancini-Griffoli , Nigel Jenkinson, Mikari Kashima, Tanai
Khiaonarong, Céline Rochon , and Hervé Tourpe
Question 1: The term “fintech” sounds very general.
What does it cover?
Fintech—the application of technology to t he nancial
sector—is a broad term. Art icial intelligence, big data,
biometrics, and dist ributed ledger technology, such as
blockchains, are just a few of t he technologies that fall
under the ntech umbrella .
Financial ser vices are already beginni ng to change as
a result of ntech. Peer-to-peer funding is m aking some
headway, messaging applications are oering pay ment
services, c ybersecurity risks are i ncreasingly analyzed by
machines that trac k online behavior, and credit scoring is
gradually reec ting the vast amount of data on borrowers.
Financial act ivity may shi away from traditional
intermediaries l ike banks toward networks in which ma rket
participants do busi ness directly with each other.
End-users may benet from these changes, but t he question
for policymakers is t he impact ntech could have on the
structure a nd role of banks, nancial stabil ity, customer
safety, nancial i nclusion, and monetary policy transmis sion.
Question 2: Can you outline some big trends in fintech?
ere are two main forces that cou ld be especially disruptive.
e rst is the explosion of availa ble customer data—on
nancial tr ansactions, constraints, a nd goals but also on
identity, preferences, habits, and connections. ere is a huge
opportunity for cha nge depending on who can aggregate
and control this data a nd who can link it to easy-to-use
interfaces and applications t hat may already be in use.
e other big change relates to payments. Ever since the
invention of double-entry bookkeeping , we have perfected
and increasingly relie d on the account-based system of
payments. at is, instead of ha nding cash to each other, we
have instructed ban ks to alter entries in their ledgers. i s
requires costly identity ver ication, accounts, liquidity and
risk management, and payment clea ring and settlement
services ult imately provided by central banks. Cur rently,
cash is nearly a rar ity.
But ntech could change al l that. Depending on the course
of technology, and of central ban ks, we may start to use the
electronic equivalent to cas h—electronic tokens—even for
payments across borders. Imagi ne the potential changes to
the banki ng system, to the role of trust, to the speed and co st
of transactions , even to the expansion of the decentraliz ed
service economy requiri ng small-value payments within and
across borders. e implications could be huge.
Question 3: So what could be the effects beyond
new and better services?
is IMF paper introduces a f ramework for thinking about
the eects of ntech on market s tructure. e focus is rst
on identifying shor tcomings of current services—area s
in which better ser vices thanks to new technologies cou ld
cause a jump in demand. e focus t hen shis to how
these same technologie s could aect the need for nancial
intermediaries, a s opposed to standard market platforms;
the organizationa l structure of these intermedia ries; and
barriers to new entrants . e hope is that the framework will
still be usef ul in future work.
Intermediaries—suc h as banks, rms specia lized in
messaging ser vices, and correspondent banks clear ing
and settli ng transactions across borders—are common in
nancial ser vices, but will face signi cant competition. Some
may partner, others wil l change, and a few will bow out.
New technologies such as identity and ac count
verification could lower tra nsaction costs and offer more
information on counterpar ties, making intermediarie s
less relevant .
Existing i ntermediaries may be pushed to specializ e and
outsource well-dened task s—possibly including customer
due diligence—to technolog y companies.
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