February 20, 2018
The FinTech effect is difficult to overestimate – the adoption of innovative technological solutions facilitate structural changes in the market, opening up opportunities for previously ‘invisible’ groups of population, strengthening the position of small businesses in the ecosystem, lifting people from poverty and democratizing the financial services industry by boosting institutional efficiency.
In an enlightening paper, the Bank for International Settlements assesses how technology-driven innovation in financial services may affect the banking industry and the activities of supervisors in the near-to-medium term.
Sound Practices: Implications of FinTech developments for banks and bank supervisors
Where the risks associated with FinTech vary significantly across the different scenarios, the identified opportunities will depend less on particular scenarios and more on the technologies that will allow them to be realized. Some important opportunities to consider include:
Digital finance has improved access to financial services by underserved groups. Technology can reach remote locations. Only 6 out of 10 adults have a bank account, but there are more mobile devices than there are people in the world. The promise of digital finance to reach scale, reduce costs and, if coupled with the appropriate financial capability, broaden access is unprecedented. Financial services could be provided to more people with greater speed, accountability, and efficiency.
Better and more tailored banking services
Banks are already regulated and know how to bring products to a regulated market. FinTech companies could help the banking industry improve their traditional offerings in many ways. Banks may, for example, provide white-label robo-advisors to help customers navigate the investment world and create a better and tailored customer experience. Partnerships with FinTech companies could also increase the efficiency of incumbent businesses.
Lower transaction costs and faster banking services
Innovations from FinTech players may speed up transfers and payments and cut their costs. For instance, in the area of cross-border transfers, FinTech companies can provide faster banking services at lower costs in some cases.
Improved and more efficient banking processes
Innovation may allow the conduct of operations in a safer environment thanks to the use of cryptographic or biometric technologies and more interoperable systems decreasing the chances of failure.
Potential positive impact on financial stability due to increased competition
The entry of new players competing with incumbent banks could eventually fragment the banking services market and reduce the systemic risk associated with players of systemic size, as also analyzed by the FSB.
FinTech could be used to improve compliance processes at financial institutions. Regulation is increasing globally but the effective development and application of RegTech (see Box 5 below) could create opportunities to, for example, automate regulatory reporting and compliance requirements as well as facilitate more cross-sectoral and cross-jurisdictional cooperation for improved compliance (e.g. AML/CFT).
Mobile payments in China totaled 81 trillion yuan ($16.7 trillion) for the first 10 months of 2017, nearly 40% more than the whole of the previous year as cashless transactions become increasingly popular in the country.
The 10-month figure represented a 37.8% leap over the 58.8 trillion yuan recorded in 2016.
Among China’s 724 million mobile phone users as at the end of June 2017, more than 35% often make mobile payments while 31.8% prefer using cash or credit cards.
Google’s Tez payment service in India has gotten a major update that allows users to pay their utilities and other bills via the app. In the case of recurring bills, the app will send a notification when a new payment is due and fetch the bill. The app also lists previous bills paid, and it supports multiple accounts.
Tez clocked 12 million users in December, just three months after launch, but Google has yet to provide an updated figure.
The Philippines government is considering using Alibaba’s financial technology solutions to lower remittance costs for overseas Filipino workers (OFWs) and offer them other online-based banking and financial management services.
Xiongwen Rui, Vice President and Head of Security & Risk Management at Ant Financial, said that Ant Financial’s e-payment service, Alipay, has a fraud-loss rate of less than 0.01 basis points. Ant Financial uses a dynamic QR code which does not contain any credit card information, along with a payment password and a fingerprint verification system, so that even if one’s smartphone is stolen, the e-wallet uploaded there would be useless.
The company also offers microloans to businesses under a 3-1-0 process, which means it takes only three minutes to borrow and one minute to approve the loan – all done with zero human intervention.