Bali Fintech Agenda 2018 :-
The International Monetary Fund & World Bank has recently launched the Bali Fintech Agenda, a set of 12 policy recommendations aimed at better harnessing the benefits and opportunities of rapid advances in financial technology. It also highlighted the importance of managing risks. The Bali Agenda sets out a road-map to be used by national authorities as a reference point for policy design and implementation.
The Bali Agenda correctly sees a role for central banks to issue digital currency, and expanding access to and improving the resilience of payments services.
What is Fintech ?
Fintech is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services. The use of smartphones for mobile banking, investing services and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public.
Or in a simple language we can say “The computer programs and other technology used to support or enable banking and financial services”.
Why do we need Fintech ?
The spread of formal banking has been constrained by the cost of physically reaching people in rural and remote areas, as well as the economics of servicing low-income populations, informal sectors and small- and medium-sized enterprises.
The innovations spurred by digital breakthroughs are starting to revolutionise the availability of financial services, which is sorely needed, with 1.7 billion worldwide un-banked.
Fintech has the potential to broaden the reach of formal financial services, sharply lower costs and spur efficiency gains & The resulting income and employment gains and poverty reduction should help bring more inclusive growth in support of the UN’s 2030 Agenda for Sustainable Development.
What are the benefits of Fintech ?
- Innovation in payments, clearing and settlement
- Offering both the banked and un-banked cheaper and faster services
- Fintech providers are now beginning to offer saving, borrowing, insurance and other financial products and advisory services. As a result, financial inclusion can fundamentally reshape the lives of people and have a hugely positive economic and social impact.
- Governments benefited from reduced leakages and better targeting of public services, while an expanding tax base through improved compliance allows greater resource-generation for public investment.
What are the risks of Fintech ?
- Fintech tends to be lightly regulated or unregulated in some jurisdictions and soundness and stability are concerns.
- Payments and e-money operators use essentially private money, which carries credit and settlement risks.
- Broader financial stability questions arise as fintech expands from a low base and linkages with banks grow.
- Combating cyber-security vulnerabilities is increasingly important.
- Crypto-currency raise issues related to excessive price volatility, lack of investor, illicit activities, and regulatory arbitrage and contagion.
- Other fintech risks relate to monetary policy transmission, financial safety nets, lender-of-last resort and questions regarding financial crisis management and resolution.
- There are increasing concerns associated with data privacy, data security and money laundering.
What needs to be done on ground to expand the base of Fintech & avoid the risks ?
- Need to have an appropriate supervisory and regulatory approach at the country level, backed by international cooperation to address cross-border concerns.
- Regulatory sandboxes, incubators and accelerators can be used to test new products and technologies, but bringing fintech under strengthened, effective and unified supervisory oversight is a priority.
- Regulation/licensing and risk management should be based on activity rather than type of institution for a level playing field for financial service providers.
- Appropriate rules also need to be set for data protection, privacy and technology, along with cybersecurity protection and reporting standards.
India’s Scenario :-
In India, planned reforms include overhauling payments system laws to foster competition, consumer protection, stability and resilience, although whether to establish a separate regulator or keep the Reserve Bank of India (RBI) in charge, in line with usual global practice, is still under debate.
Another reform is a digital fiat currency, under consideration by the RBI. Besides regulation, bridging the digital divide is a pressing issue for India.