The document discusses the impact of fintech on financial inclusion, highlighting its role as a key enabler of development aligned with UN sustainable development goals. It outlines recent innovations in fintech, including enhanced consumer services and effective competition, while also addressing potential regulatory challenges and risks. Policymakers and regulators are urged to adapt their frameworks to harness fintech opportunities while ensuring consumer protection and stability in the financial system.

1. OVERVIEW OF RECENT INDUSTRY
DEVELOPMENTS:
“FINTECH FOR INCLUSION” TAKES CENTRE
STAGE AMID ACCELERATING CHANGE
Pia Roman
Fourth Conference on Standard-Setting Bodies and Innovative Financial Inclusion
25-26 October 2018
Basel, Switzerland

2. Why Fintech & Financial Inclusion?
• Financial Inclusion seen as key enabler of development, and is noted as a specific target in
seven of the UN’s SDGs
• Digital financial services in particular can empower people to lead productive & healthy lives
• Target groups like women, youth, smallholder farmers, MSMEs, migrants, & refugees
especially benefit from innovative financial services

3. “Fintech” – Then…
• The Financial Stabiity Institute (FSI) was jointly created in 1998 by the Bank for
International Settlements and the Basel Committee on Banking Supervision. Its
mandate is to assist supervisors around the world in improving and strengthening
their financial systems.
• In 2012 FSI joined the G20’s Global Partnership for Financial Inclusion (GPFI) to
hold their first conference on “Standard-Setting Bodies and Financial Inclusion:
Promoting Financial Inclusion through Proportionate Standards and Guidance”
 Focused on proportionality, esp around KYC, formalization, branchless banking,
and consumer protection at the Bottom of the Pyramid
 Notable ”innovative” services relevant to financial inclusion were mobile money
payments and use of agents in some low-income countries, while new payment
services linked to bank or credit card accounts had been emerging in high
income countries

4. “Fintech” – … and Now
• Adoption happening at much faster
pace than past innovations
• Key features include improved
service & reach by traditional &
new FSPs, streamlined
infrastructure, reduced
intermediation, strategic role of
data, customer empowerment
• Fintech touches not only financial
services sector but every business
that financial sector deals with,
which is to say, all of them
Source: Business Insider Intelligence, May 17, 2018, “Fintech could be bigger than ATMs, PayPal and
Bitcoin combined”

5. And it’s not just in high income countries…

6. What’s included in Fintech?
* FSB, June 2017: “Financial Stability Implications from Fintech: Supervisory
and Regulatory Issues that Merit Authorities Attention,” http://www.fsb.org/wp-
content/uploads/R270617.pdf
• The Financial Stability Board (FSB) is an
international body that monitors and makes
recommendations about the global financial system.
The FSB defines fintech as:
 “Technologically enabled financial innovation that
could result in new business models,
applications, processes, or products with an
associated material effect on financial markets
and institutions and the provision of financial
services”
• Drivers include:
 Shifting consumer expectations around
convenience, speed, cost & user-friendliness
 Advances in technology related to the internet, big
data, mobile technology & computing power
 Evolving regulatory environment & related
changes in business incentives for incumbents &
new players

7. Recent Fintech Developments of Interest*
Fintech-based business models:
 “Challenger” banks
 Incumbents building own digital banks
 Multiple partnership iterations
between traditional & new FSPs
 “Bigtech” moving into finance
Fintech-based applications:
 Open APIs
Fintech-based processes:
 Big data analytics & deep learning
 Blockchain/DLT/smart contracts
 Cloud computing
 NFC expansion
 AI, algorithms & robotics
 Robo-advisors
 Digital identity
systems/verification/KYC utilities
Fintech-based products:
 Mobile & web-based financial
services
 Next generation digital lending
 Payments innovations
 Crowdfunding & peer-to-peer
lending
 Digital fiat currencies, tokens
 Cryptocurrencies & ICOs
Regtech/Suptech Tools:
 Reporting, compliance, monitoring,
analysis tools
* Categories taken from FSB definition

8. How are Recent Fintech Developments
Enabling Inclusion? (1/5)
 Expanding competition
 Reducing cost of acquisition for new customers
 Greater reach into previously under-served markets
 Faster service innovation by moving development
outside of legacy core banking systems
Fintech-based business models:
 “Challenger” banks
 Incumbents building own digital
banks
 Multiple partnership iterations
between traditional & new FSPs
 “Bigtech” moving into finance

9. How are Recent Fintech Developments
Enabling Inclusion? (2/5)
• Greater data learnings for business model
refinement, customer centric product
design
• Remote onboarding, monitoring
• Bitcoin-enabled remittances
• Cheaper data storage along with more
sophisticated service provisioning
• Expanded ecosystem development
• Enhanced financial literacy tools and
behavioral “nudges”
• Cost-effective “personalized” advice at
scale
• Broader, more reliable CDD tools and
verification systems
• Real-time service monitoring
Fintech-based processes:
 Big data analytics & deep
learning
 Blockchain/DLT/smart contracts
 Cloud computing
 NFC expansion
 AI, algorithms & robotics
 Robo-advisors
 Digital identity
systems/verification/KYC utilities

10. How are Recent Fintech Developments
Enabling Inclusion? (3/5)
• Faster innovation, reduced cost of
integration
• Enhanced opportunities for collaboration
between service providers
• Interoperability
• Third party applications development that
helps spur usage
• Faster ecosystem development (“digital
rails”)
Fintech-based applications:
 Open APIs

11. How are Recent Fintech Developments
Enabling Inclusion? (4/5)
• Real-time reporting, monitoring & data
analysis
• Direct links between supervisors, service
provider systems
• New oversight tools - geolocation, cluster
analysis
• Lower cost of compliance => lower cost of
service
Regtech/Suptech Tools:
 Reporting, compliance,
monitoring, analysis tools

12. How are Recent Fintech Developments
Enabling Inclusion? (5/5)
• Remote, paperless service offerings &
digital only customers
• Democratization of access by smaller
players
• Cloud-based loan origination services
• Providing a digital “human touch”
(interactive co-browsing tools, video
chat, chatbots)
• New data sources & origination
requirements
• Streamlined workflows, lower cost of
compliance
• Reduced cash handling costs
Fintech-based products:
 Mobile & web-based financial
services
 Next generation digital lending
 Payments innovations
 Crowdfunding & peer-to-peer
lending
 Digital fiat currencies, tokens
 Cryptocurrencies & ICOs

13. At the same time, these development raise
risks & issues to be aware of…
• Fast changing business models, rapid ability to scale
• Risk of regulatory arbitrage &/or “gaming the system”
• Supervision & monitoring of real-time, high volume transactions in a way that also allows
for immediate mitigation of high risk situations
• AI brings new risks – unregulated fintech firms, big data analytics, changing nature of
activities performed by FSPs (supervision of individuals vs. supervision of algorithms).
Also unresolved liability questions with AI (civil, criminal, administrative).
• Open APIs introduce unregulated third-party developers
• Increased need for inter-regulator coordination
• Consumer protection, redress and liability along multi-party digital value chains
• Digital ponzi schemes
• Data privacy and protection critical to prevent fraud/criminal activity, as well as non-
financial risks such as inappropriate government use of personal data that discourages use
of formal financial services
• Cybercrime (phishing, malware)

14. What have the SSBs been doing on this
topic?
• Fintech & Market Structure in
Financial Services Sep 2018
• The Use of Regtech & Suptech
by Firms & Authorities Aug 2018
• Crypto-Assets Report, Jul 2018
• Fintech Credit Markets Around the World
Sep 2018
• FSI: Innovative Technology in Financial
Supervision (Suptech) Jul 2018
• BCBS: Sound Practices: Implications of
Fintech Developments for Banks and Bank
Supervisors, Feb 2018
• CPMI: Cross-Border Retail Payments, Feb
2018
• CPMI: Distributed Ledger Technology in
Payment, Clearing and Settlement: An
Analytical Framework Feb 2017
• FATF Fintech and
Regtech Initiative
Platform Mar 2018
• Deposit Insurance & Financial
Inclusion: Current Trends on
Insuring Digital Stored-Value
Products, Oct 2018
• Fintech Survey (forthcoming)
• IOSCO Fintech
Network May 2018
• IOSCO Research
Report on Financial
Technologies
(Fintech) Feb 2017• Draft Application Paper on the
Use of Digital Technology in
Inclusive Insurance Feb 2018
• Fintech Developments in the
Insurance Industry, Mar 2017p

15. In October 2018 the World Bank & IMF announced
their “Bali Agenda” to support national regulators
• Embrace the Fintech Revolution
• Enable new technologies to enhance financial service provision
• Reinforce competition & commitment to open, free & contestable markets
• Foster Fintech to promote financial inclusion & developing financial markets
Foster enabling
environment to harness
opportunities
Address potential risks
& improve resilience
Strengthen financial
sector policy
framework
Promote international
collaboration
• Monitor developments closely
to deepen understanding of
evolving financial systems
• Adapt regulatory frameworks &
supervisory practices for
orderly development & stability of
the financial system
• Modernize legal frameworks to
provide & enabling legal
landscape
• Safeguard financial integrity
• Ensure the stability of monetary &
financial systems
• Develop robust financial & data
infrastructure to sustain Fintech
benefits
• Encourage international
cooperation & coordination,
and information sharing
• Enhance collective
surveillance & assessment of
financial sector risks

16. How do regulators and policymakers filter
out the noise and focus on key issues?
• Fintech-related changes to traditional financial services business models, structures &
operations may require supervisors to reassess their current supervisory models
and resources in order to ensure continued effective oversight of the financial system.
• The same technologies that offer efficiencies and opportunities for fintech firms and
traditional financial service providers, such as AI/ML/advanced data analytics, DLT,
cloud computing and APIs, may also have the potential to improve supervisory
efficiency and effectiveness.
• Consumer protection, including data privacy and protection, redress and dispute
resolution will require more active involvement on the part of regulators and
supervisors than traditionally addressed.
• Just as fintech is blurring the lines between sectors, so too must policymakers,
regulators, supervisors and SSBs proactively collaborate to 1) research &
understand fintech developments & their implications, and 2) address cross-cutting
issues as they arise.
Source: BCBS: Sound Practices: Implications of FinTech Developments for Banks and Bank Supervisors, February 2018