FinTech and Financial Inclusion

Transcription

1 B B B FinTech and Financial Inclusion Martin Čihák Advisor and Unit Chief, International Monetary Fund Regional Conference Financial Inclusion in Asia-Pacific: The Way Forward Cambodia, December 7 8, 2017 Comments by and inputs from IMF colleagues gratefully acknowledged. The views expressed here are those of the speaker, and do not necessarily represent the views of the IMF, its Executive Board, or IMF Management.

2 Overview of issues FinTech & FInclusion: new data, new evidence Inclusion vs. stability: role of regulation & supervision RegTech & SupTech Cross-border issues Financial sector policy strategies

3 Accelerating pace of technological progress in finance Everything else FinTech Source: IMF Staff Discussion Note 17/05, Arner, Barberis, and Buckley (forthcoming); Quinn and Roberds (2008); World Economic Forum (2015). 3

4 Accelerating interest in various building blocks of Fintech (Google Interest Index, 100 reflects peak popularity) Artificial intelligence Distributed ledger Source: Google Trend Analytics, IMF Staff Discussion Note 17/05. Machine learning Big data 4

5 Fintech innovations are far reaching Technology Technology Foundations Innovations Pay Financial Financial Services Services Save Borrow Manage Risks Get Advice AI Big Data Machine Machine learning learning Predictive Predictive analytics analytics Investment Investment advice advice (robots) (robots) Credit Credit decisions decisions Regtech, Regtech, fraud fraud detection detection Asset Asset trading trading Distributed Computing Distributed Distributed ledger ledger (Blockchain) (Blockchain) Settle Settle payments payments B2B B2B Back-office Back-office and and recording recording Digital Digital currencies currencies Cryptography Smart Smart contracts contracts Biometrics Biometrics Automatic Automatic transactions transactions Security Security Identity Identity protection protection Mobile Access Internet APIs APIs Digital Digital wallets wallets Easy Easy to to use use digital digital wallets; wallets; Finance Finance dashboards; dashboards; P2P P2P Crowd-funding Crowd-funding Inter-operability Inter-operability and and expandability expandability Source: IMF Staff Discussion Note 17/05. 5

6 Examples of benefits: distributed ledger technology Reduce cost of international transfers and remittances and improve financial inclusion Shorten the time to settle securities transactions and reduce settlement risk Reduce cost of small retail money transfer Improve back office functions for security transactions Distributed ledgers offer a fast, reliable digital record keeping system with wide application to finance and beyond 6 6

7 Principles of digital financial inclusion 1. Promote a digital approach to financial inclusion 2. Balance innovation and risk to achieve digital financial inclusion 3. Provide an enabling and proportionate legal and regulatory framework for digital financial inclusion 4. Expand the digital financial services infrastructure ecosystem 5. Establish responsible digital financial practices to protect consumers 6. Strengthen digital and financial literacy and awareness 7. Facilitate customer identification for digital financial services 8. Track digital financial inclusion progress 7

8 New data: leapfrogging via mobile money Use of mobile money services Presence of ATMs and mobile money agents number of mobile money transactions per 1,000 adults 15,000 12,000 9,000 6,000 3, Bangladesh 40% active users Botswana 61% active users Madagascar 20% active users Pakistan 49% active users ATMs per 100,000 adults Eastern Africa Western Africa Other African Regions Africa Asia and the Pacific Other Regions Rest of the World mobile money agents per 100,000 adults ATMs per 100,000 adults mobile money agents per 100,000 adults Source: IMF s Financial Access Survey, staff calculations. Left chart: information on active users, derived from regulatory data on the number of registered and active mobile money accounts. Right chart: data for 2016 or most recent year, 50 economies for which data on both types of access points are available. 8

9 Challenges: addressing risks while allowing innovation Immediate risks financial integrity consumer protection tax evasion exchange and capital controls Potential risks financial stability monetary policy 9

10 Economic growth: financial development helps up to a point Effect on GDP growth rate (% points) Kenya India China '98 China '08 Russia China 95 % confidence band around the "turning point" South Africa Brazil United States Financial Development Index Source: IMF Staff Discussion Note 15/08 ( Rethinking Financial Deepening: Stability and Growth in Emerging Markets ) 10

11 Evidence that fintech can reduce exclusion Lending Club loans (USD) in 3-digit Zip codes with declining bank branches Micro evidence that fintech penetrates areas that could benefit from credit supply, e.g. areas w bank branches Also evidence of penetration in areas with concentrated banking markets (and loan spreads for same default risk) Source: Federal Reserve Bank of Philadelphia Working Paper No , based on Lending Club data. 11

12 Can fintech help close gender gaps in financial services? 50% Share of borrowers who are women 45% 40% 35% Cabo Verde Chile Costa Rica Malaysia Poland Source: IMF s Financial Access Survey, staff calculations. 12

13 Financial stability: risks with broadening credit access rise as supervisory quality falls 40 High Basel Core Principles Financial stability Investing in stronger, high quality regulation and supervision can pay big dividends Average Basel Core Principles 0-10 Low Basel Core Principles ,000 Borrowers per 1,000 adults in contrast, increases in financial services other than credit do not seem to hurt stability Source: IMF Staff Discussion Note 15/17 ( Financial Inclusion: Can It Meet Multiple Macroeconomic Goals? ) Note: Financial stability approximated by z-score, which captures banks distance-to-distress (buffers against shocks to earnings). 13

14 Challenge/opportunity: supervisory quality is the lowest where access is the lowest 5 Gaps in Performance on Basel Core Principles of Banking Supervision 14 Gaps in Supervisory Quality (Distance from perfect scores) th Low Access 30-60th 60-90th Medium Access High Access Percentiles of Financial Institutions Access Index Source: IMF Staff Discussion Note 15/17. Basel Core Principles data from Financial Sector Assessment Program; Financial Institution Access Index from IMF Staff Discussion Note 15/8. The bars represent distance from perfect scores (perfect score=0). 14

15 Objectives and principles of financial regulation Externalities Market failures Flexible perimeter Proportional to risk Selected issues: Entity vs. activity-based Privacy vs. transparency Regulatory cooperation Regtech Regulatory sandboxes Level playing field Protect consumers Source: IMF Staff Discussion Note 17/05. 15

16 Sandboxes in selected jurisdictions General Information Type of Applicant Benefits for Businesses Safeguards Country Regulator Authorized / Licensed / Incumbents Unauthorized / Unlicensed / Startups Regulations relaxed or waived Licensing requirements relaxed or waived Clarifications on regulatory expectations Limits on customers, value or duration Additional reporting obligations / closer monitoring Additional consumer protections / risk mitigation Specified regulations that cannot be waived Australia ASIC Canada CSA Hong Kong SAR HKMA Malaysia BNM Singapore MAS Switzerland FDF United Arab Emirates ADGM United Kingdom FCA Explicitly mentioned in the regulatory authority's disclosure, staff analysis. Not required or not mentioned in the regulatory authority's disclosure. Source: IMF Staff Discussion Note 17/05. 16

17 Cross border payments offer ripe opportunities Demand Supply Capturing Messaging Settlement Disbursing Shortcomings: costly, cumbersome, slow, and opaque Source: IMF Staff Discussion Note 17/05. 17

18 How can fintech reshape the landscape? Three scenarios for distributed ledger technology Back-end processes Compliance Means of payment Service attributes Market structure Efficiency gains from payments tracking, accounts reconciliation, and liquidity optimization Small impact (barriers in correspondent banking) Large savings from compliance costs with information sharing (KYC utilities and digital identities) Some impact new entrants (i) Hub-and-spoke networks enable faster, traceable, and low-cost payments, and (ii) CBDCs bring trust, stable FX rates, and interoperability Significant impact Potential disruption Source: IMF Staff Discussion Note 17/05. 18

19 Hub-and-spoke networks Three important caveats: Volatility in exchange rates Lack of trust Network interoperability Source: IMF Staff Discussion Note 17/05. 19

20 Central bank digital currencies Features Distributed ledger based representation of fiat money as a new means of payment and store of value (not parallel currency or new unit of account) Exchanged at par with central bank s other liabilities, not interest bearing Issues Could it resolve coordination issues with new virtual currencies? Could it allow central banks to retain control of monetary policy vs widespread use of privately-issued virtual currencies? Cost/benefits balance still unclear Source: IMF Staff Discussion Note 17/05. 20

21 Beware the silo mentality Financial inclusion Financial stability E stable&inclusive = E stable + E inclusive + Cov inclusive, stable Inclusion vs. stability: influenced by financial openness, tax rates, education, and depth of credit info systems Much to gain from coordinated policies that take into account the inclusion-stability synergies and tradeoffs Multiple government agencies tradeoffs and synergies must be addressed at a high policy-making level Based on WB Policy Research Working Paper 7722 ( The nexus of financial inclusion and financial stability ) by Cihak, Mare, and Melecky. See also Risks and returns, World Bank, December

22 Summary Major changes on the way Central banks and regulators are preparing Examples of IMF contributions (focused on macro-financial stability) Multilateral Data compilation (Financial Access Survey ) Policy analysis (research, international forums) Bilateral Article IV surveillance Financial Sector Assessment Program (with World Bank) Technical assistance (strengthening supervision, oversight framework for payments and financial market infrastructures) 22