Fintech may bring better and cheaper service in your banking
FINANCIAL technology (Fintech) may improve cross-border payments, including by offering better and cheaper services and lowering the cost of compliance with anti-money laundering and combating the financing of terrorism regulation.
This is according to the International Monetary Fund’s (IMF) Fintech and Financial Services: Initial Considerations latest research paper released this week. The IMF said the financial services sector was poised for change. But it was hard to judge whether this would be more evolutionary or revolutionary and that policy making would need to be nimble, experimental, and co-operative.
“At the same time, regulatory authorities need to balance carefully efficiency and stability trade-offs in the face of these rapid changes. They need to be assured that risks to stability and integrity – including from cyber attacks, money laundering and terrorism financing – can be effectively managed without stifling innovation,” the IMF said.
Financial inclusion is a major concern across sub-Saharan Africa as a staggering 350 million adults in the region are unbanked, according to data in 2014.
And South Africa is often seen as an African fintech hub with many start-up companies having been established in the last few years. It has giving rise to small business solutions like Rainfin backed by Barclays bank, which is currently the largest peer-to-peer lending business in South Africa with transactions of more than R1 million per day.
Bensam Solomon, a research assistant at International Finance Corporation, said the pace of the fintech industry in sub-Saharan Africa is somewhat dictated by existing mobile network operators and their relationships with central banks
“South Africa’s well-regulated banking sector and aggressive digital banking roadmap are already developing its own system of innovative fintech solutions, which represents a major entry barrier for venture capital-backed fintechs,” Solomon said.
The IMF said fintech firms had attracted substantial investment in recent years globally, while public interest had grown significantly.
Most firms had remained small – reflecting their knowledge based business model – but investment in them has risen substantially. Total global investment in fintech companies reportedly increased from $9 billion (R117.57bn) in 2010 to more than $25bn last year. Venture capital investment has also risen steadily, from $1bn in 2010 to $13.6bn in 2016.
The IMF said while fintech was bringing new people into the banking system, international co-operation will be important to offset risks posed by the technology which includes its application, trust, monetary policy transmission, financial stability and if it undermines competition.
“Fintech is an international issue. With the blurring of boundaries among entities, activities, and jurisdictions policymakers need to consider implications for common standards and legal principles, to the extent that they align with national priorities.”