Fintech and Financial Services: Initial Considerations

This paper reviews developments in the 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. 

Using an economic framework, the paper discusses how fintech might provide solutions that respond to consumer needs for trust, security, privacy, better services, and change the competitive landscape. The key findings indicate that the financial services sector is poised for change. Regulatory authorities need to balance carefully efficiency and stability tradeoffs in the face of these rapid changes. They need to be assured that risks to stability and integrity - including from cyberattacks, money-laundering and terrorism financing - can be effectively managed without stifling innovation. They need to ensure that trust is maintained in an evolving financial system. In particular:

• Regulators may need to complement their focus on entities with increasing attention to activities, as financial services are increasingly provided by a diverse group of firms and market platforms. 
• Governance needs to be strengthened. Rules and standards will need to be developed to ensure the integrity of data, algorithms, and platforms. 
• Policy options to support open networks could be considered. In doing so, central banks may need to assess costs and benefits of increasing access to their settlement systems or offering digital national currencies. 
• Legal principles need to be modernized. Maintaining trust in financial services may also require the development of new legal rules to clarify rights and obligations within the new global financial landscape.