Fintech in EMEs: blessing or curse?

Panel remarks* by Mr Luiz Awazu Pereira da Silva, Deputy General Manager of the BIS, at the CV Meeting of Central Bank Governors of CEMLA - Asuncion, Paraguay, 5 June 2018.  

Technology-driven innovation in financial services, or fintech, has become more prominent in recent years. Key drivers of this trend are lower costs and scale economies, which can enhance the efficiency and reach of financial services. Emerging market economies (EMEs), many of which have a relatively less developed financial sector and a larger share of the population that is financially excluded than advanced economies (AEs), naturally have more scope to reap significant benefits from these technological transformations. But these innovations could also undermine the franchise value of existing financial institutions and lead to excessive risk-taking or regulatory arbitrage. In addition, changes in the financial landscape brought about by fintech could affect monetary policy transmission and the efficacy of macroprudential policy measures in smoothing financial cycles. Thus, it is important for central banks and the regulatory community to keep track of current developments and to keep regulatory frameworks up to date.

My remarks will examine the benefits and risks of fintech for EMEs. In a nutshell, is fintech is a blessing or a curse for EMEs? First, I will review the fintech developments that are more relevant for EMEs. Specifically, I will focus on two technologies - mobile and internet, and distributed ledger - but only touch upon machine learning and big data. By examining some recent applications to mobile banking and payments, peer-to-peer (P2P) lending, remittances, trade finance and credit extension (Table 1, shaded cells), I will highlight the potential of these innovations as new forms of financial inclusion and financing channels.  Finally, after discussing their potential implications for monetary and macroprudential policies, I will conclude by examining the options for a regulatory response.