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Welcome to the World Bank. Thank you for joining us on the third and final day of these discussions. It is a pleasure to have you here.

Many years ago, the Canadian philosopher Marshall McLuhan coined the expression of “global village”.  At that time we thought that this meant that we would know everything that was happening on the other side of the globe.  That was true.  But today I believe the real meaning of this phrase is that, like in a village, everybody knows everything about you and about what you are doing.  The anonymity of the masses that was the hallmark of the XX century is gone, and the new business models are based on how much service providers know about each one of us.

Certainly this is one the features of many strands of fintech.  Because fintech is picking up speed, transforming how the financial sector operates and bringing in a completely new set of players to the financial sector, the new ways to gather, process and use information and their implications to financial regulation deserve analysis.

During the past two days, we have discussed the changes seen across all areas of finance: payment and infrastructures including securities transactions; consumer and SME credit; and insurance to name but a few.

We have also seen how some of these trends and changes are more dramatic in emerging markets and developing countries than in developed countries.  This is consistent with the fact that 40% of the global population already has internet access, and that the poorest 20% of households of the world are more likely to have access to a mobile phone than to clean water and sanitation.

Of course, the dividends of digital technologies are not equal across countries, and greater connectivity may not produce faster development. This “digital divide” was the focus of the World Bank’s most recent World Development Report.

The report noted that, by promoting inclusion, increasing efficiency, and spurring innovation, the digital revolution holds vast potential for growth. On the other, many countries are held back by the same challenges of traditional development, i.e., how to achieve a favorable business climate, strong human capital and good governance.  Technological change sometimes can override this obstacles—this is, in many ways, the true sense of disruption.  But this may not be enough, and broader structural actions remain fundamental to sustain development.

In any case, the contribution to fintech can be particularly relevant because when people have access to financial services, they can overcome income shocks. They can invest in skills, health and new income streams.  With adequate finance they can create and protect a brighter future.

That is why financial exclusion, notably lack of access to credit and insurance, is so serious. We estimate that as many as 2 billion adults remain financially excluded.  Nonetheless, I believe our goal of Universal Financial Access, i.e., for all adults to have at least a transaction account by 2020 is feasible, and we see that it has been helped by fintech.

In fact, we have already seen evidence of fintech’s promise:

• Tanzania rapidly increased transaction accounts from 17.3% of adults in 2011 to 39.8% in 2014, primarily through penetration of e-money services.
• In India, digital ID developments have been instrumental in adding 200 million new bank accounts.
• Alifinance, a subsidiary of the Chinese e-commerce firm Alibaba, provides micro loans to vendors on its e-commerce platform through a credit-scoring model based on at least three months of vendor’s online activity. Loan decisions are made automatically and almost instantly based on the applicants’ digital footprint.[1]
• In Brazil, electronic payment cards reduced costs of social transfers in the country’s conditional cash transfer program, Bolsa Familia, to under 3% of total payments.[2]

These are just a few examples that highlight the positive impact. And, indeed fintech can bring about significant market benefits, such as increased competition and efficiency gains for the financial services industry and its customers.

Yet, fintech poses several challenges for regulators. How can we adapt to the fast-changing landscape, a new class of entrants, while ensuring a level playing field and addressing consumer-protection and privacy issues, as well as concerns related to Anti-Money Laundering/Combatting the Financing of Terrorism?  How to balance the risks of encrypted money transactions and the benefits that financial inclusion can bring to anti-money laundering activities by reducing cash transactions and allowing greater traceability of transactions? 

There are real questions whether investors in trends like peer-to-peer lending are fully aware of the risks that in some cases have been estimated by authorities to reach billions of dollars.  Indeed, there are differences between a company that lends using its own capital, and for which the main policy questions hover around privacy issues, and the more traditional questions surrounding those companies that lend using third party money, i.e., engaging on what could be seen as essential bank activities.

And the risks to the new consumers of financial products don’t stop at cyber-crime, rather including more mundane over-indebtedness, especially where financial education is insufficient.  As we know financial education often is much more available and cheaper for high-income consumers, including in developing countries, indicating the importance to facilitate this education to low-income people as access to new products spreads out.

Regarding broader risks, we heard yesterday that even if financial stability issues are not in the forefront yet, should an important failure occur in these new products, such as the numerous financial products now available through cell phones in Kenya, the resulting loss in public confidence could potentially compromise years of financial sector development and even affect public trust in money and banking.

We must look forward and review the regulatory and supervisory approaches – such as focusing on intelligence work rather than compliance with standards to address cybersecurity risks or supervising functions and processes rather than institutions.

Despite these risks and challenges, the promise of fintech outweighs its downsides.

As seen in the 2008 global crisis, financial systems bring development gains when they perform well and result in major social costs when they do not. 

At the World Bank Group, we place a high premium on sustainable financial development. This means that, with you, we are committed to deepen financial systems and expand access, as we manage stability and mitigate the potential of emerging risks.

Fintech makes the work of supervision and regulation even more important, allowing for innovation and creating new dimensions for it and for our partnership.  New regulations in Mexico, where strictness of identification requirements are matched to the level of account balance are a good example.

In this dynamic environment, it is important to continue engagements with players both old and new. We need to be aware and informed so we can provide clarity and guidance in regulatory frameworks, so that positive trends can take hold and risks are managed. Your work will be crucial to ensuring the right conditions are in place to pave the way for innovations in digital technology to support the achievements of global development goals.

For our part, we at the Bank Group continue active engagement at the Financial Stability Board, the Committee on Payment and Market Infrastructures, the Financial Action Task Force, and other such bodies. All are doing important work in the fintech arena – from identifying risks to developing new approaches for regulating new services.

On this last day of the conference, we end appropriately with a question especially pertinent to this group. What does this mean for coordination across borders and globally?

I trust that these conversations have helped to better frame your ongoing discussions regarding the impact that fintech has, and will continue to have, in your own jurisdictions as well as globally. Thank you for joining us.

[1] “Spotlight 2: Enabling Digital Development – Digital finance”, World Development Report 2016.

[2] “Spotlight 2: Enabling Digital Development – Digital finance”, World Development Report 2016.