The International Monetary Fund (IMF) and World Bank have released a joint paper, the Bali Fintech Agenda, aimed at helping member countries’ authorities and policymakers harness the opportunities of innovation in finance, while safeguarding the financial system from inherent risks. Presented at the annual meeting of the IMF and World Bank, the agenda consists of 12 high-level policy elements distilled from the experiences of the organizations’ member countries.
Here are some key points from the paper and panel discussion:
- National authorities should embrace fintech because it offers wide-ranging opportunities.Innovations in fintech can reduce costs and frictions in finance, increase efficiency and competition in the system, and increase access to financial services for underserved populations, per the paper. Overall, it argues, fintech will advance economic growth, while also simplifying and strengthening supervisory processes and regulatory compliance.
- But, risks associated with fintech threaten the stability of financial systems.Despite its benefits, rapid pace of fintech development poses a credible risk to the integrity and stability of the financial system, the agenda warns. While many of the risks may be addressed by existing supervisory frameworks, it explains, issues that exist outside of current legislative parameters are likely to arise, including regarding consumer and investor protections, as evidenced by the ongoing price volatility of cryptos.
- Fintech doesn’t pose a threat to the existence of banks.During the panel discussion, policymakers noted that fintech is not a risk to incumbents per se. For instance, Mark Carney, head of the UK’s central bank, highlighted that fintechs in the country have helped provide credit to small- and medium-sized businesses (SMBs), which formal lending institutions don’t generally focus on. Moreover, the panelists said, regulators have a responsibility to make sure incumbents are prepared for shifts in the industry.
The Bali Fintech Agenda is a striking acknowledgment of the rise of fintech and its increasing importance to the global economy. Between 2015 and 2017, total global investment in fintech reached $142.9 billion, per KPMG. And, in the first half of 2018, total global investment in the sector reached $57.9 billion. With 189 member countries belonging to the IMF and World Bank, the Bali Fintech Agenda is evidence that authorities worldwide are increasingly acknowledging the evolving role and significance of fintech to the global economy.
For incumbents, this is further warning that fintech is no longer a niche sector of the industry. Incumbents would be wise to increase their involvement with fintechs, through collaborations, investments, or acquisitions, to keep pace with the rapidly evolving financial services landscape.