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Fintech and Financial Services 2017

Initial Considerations

From artificial intelligence to cryptography, rapid advances in digital technology are transforming the financial services landscape, creating opportunities and challenges for consumers, service providers, and regulators alike. This paper reviews developments in this new wave of technological innovations, often called “fintech,” and assesses their impact on an array of financial services. Given the IMF’s mandate to promote the stability of the international monetary system, it focuses on rapidly changing cross-border payments.

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A new wave of technological innovations, often called “fintech,” is accelerating change in the financial sector. Fintech leverages the explosion of big data on individuals and firms, advances in artificial intelligence, computing power, cryptography, and the reach of the internet. The strong complementarities among these technologies are giving rise to an impressive array of new applications touching on services from payments to financing, asset management, insurance, and advice. The possibility now looms that entities driven by fintech may emerge as competitive alternatives to traditional financial intermediaries, markets, and infrastructures.

The widespread adoption of new technologies offers advantages, but also poses risks. Fintech may spur efficiency gains in the financial sector, offer better and more targeted products and services, and deepen financial inclusion in the developing world. However, it may also pose risks if its application undermines competition, trust, monetary policy transmission, and financial stability.

What impact might fintech have on the financial sector, and how should regulation respond? This paper lays out key regulatory issues and provides a framework through which to tackle the question. The framework recognizes that technological change is driven by the profit motives of service providers seeking to fulfill the unmet needs of users. It emphasizes the role of market imperfections that loom large in finance services. Regulation too plays an important role, both in encouraging technological change and adapting to continue to meet regulatory objectives. The hope is that this general discussion will continue to guide future work assessing fintech.