Q&A: Seven Questions on Fintech

• Author: Tommaso Mancini-Griffoli
• Pages: 9-11

Summer 2017

9 9

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 icial 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 oering pay ment

services, c ybersecurity risks are i ncreasingly analyzed by

machines that trac k online behavior, and credit scoring is

gradually reec 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 benet 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 ication, 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 eects 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 shis to how

these same technologie s could aect 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-dened task s—possibly including customer

due diligence—to technolog y companies.

Q&A

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