The government must help manage the risks of fintech
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Writer’s Next book Yes ‘The future of money: how the digital revolution is changing money and finance‘
Financial innovation sometimes brings huge returns. It can make the financial system more accessible to underserved people and improve lives. But some innovations can lead to disasters, which are usually more harmful to the poor than other innovations.
The government must find the right balance between promoting innovation and managing risk. As the world economy recovers from the Covid recession, This exacerbates inequality, The stakes cannot be higher. The pace of innovation, including some truly groundbreaking innovations, has accelerated, which has also increased the urgency of solving this problem.
In the early 2000s, financial innovation appeared in the form of new products, which ostensibly made it easier for consumers to obtain credit, and made it easier for investors to obtain higher returns and better manage risks. The arrogant notion that financial engineering itself can create value and that the private sector can adequately manage risk on its own eventually led to a spectacular collapse.
The latest wave of innovation is based on new technologies covered by the term “financial technology”. Fintech is actually putting banking and other services in the hands of consumers.We can now make payments, do basic banking, and even Use the app to trade stocks On our mobile phone.
The financial technology revolution has the potential to democratize finance. Digital bank, Robot Advisor Online platforms that directly connect depositors and borrowers are changing financial intermediaries. They allow low-income families and families in rural and remote areas to easily obtain savings and credit products, while encouraging entrepreneurial activities.
Facts have proved that cheap, fast and efficient digital payments have brought good news to consumers and businesses.Disruptive change is coming International payment, Has been expensive and time-consuming for a long time. This is a blessing for economic migrants who send money to their home countries and many low-income countries that rely heavily on such remittances. A better payment system will benefit domestic and international trade.
However, technology is not an unconditional blessing. Computer algorithm In principle, ruling on credit and loan eligibility calmly reduces obvious racial and other forms of prejudice. However, algorithms built by humans and based on historical data may eventually exacerbate existing biases.
The distribution of digital access and financial knowledge remains uneven.As Game stop saga The results show that when a speculative frenzy erupts, naive retail investors are often the last to join the party, and when the frenzy ends, they will suffer losses. The government must still work hard to protect investors and ensure basic financial knowledge so that investors understand the products offered and the risks involved.
In addition, even if the cost of entering the digital market is relatively low, it cannot ensure shortcuts for new entrants and fair competition. Network effects that benefit incumbents can lead to greater concentration in the digital realm.The Chinese government gave Alipay and WeChat Pay Free to play, they are used to create innovation, expand public financial channels, and help eradicate poverty.But these two platforms now dominate the payment field and have gained so much power that Chinese authorities have recently cracked down In them.
Indian Unified payment interface Provides a model to illustrate how the government promotes innovation and competition in the financial services sector in the private sector without directly invading the sector. The Indian government has created an open-access public digital infrastructure that provides convenient entry points for payment providers and ensures a level playing field for established operators and new entrants.
AdalIt is a biometric scheme that allows even illiterate and poor people to easily establish their own identity, thereby facilitating access to the financial system. The government has proposed regulations that allow consumers to control the use of their data.
Fintech Regulatory “sandbox” Allowing new products and services to be tested in a controlled environment and within a limited range also helps to balance the concerns of regulators with the inherent risks of innovation.
Fintech can play a powerful role in the democratization of finance in developed and developing economies, but its dangers cannot be ignored. Although the private sector should take on important responsibilities unfettered, the government plays an indispensable role in ensuring profits and managing risks.