Published on Voices

Fintech and capital markets: What next?

© Markus Spiske/Unslash © Markus Spiske/Unslash

Financing for development is critical. For many developing countries, these gaps undermine prospects of achieving the Sustainable Development Goals (SDGs) and supporting vital economic sectors.  Efficient and resilient capital markets can help bridge these gaps—like the gap of 1.6 billion people lacking adequate housing, or the $5.2 trillion in financing required for small and medium sized enterprises in the developing world. Capital markets can help crowd-in private capital to finance strategic sectors. Sound local capital markets protect economies from capital-flow volatility and reduce dependency on foreign debt.

Engaging with regulators and central banks to address the fine balance between risks and opportunities is a priority area of our work at the World Bank Group’s Finance, Competitiveness and Innovation Global Practice (FCI).  Indeed, for many of our partners and clients, this is a vision defined by high stakes and high-reward applications. And while the case for financial technology is clear in terms of its transformative impact on societies, business models, financial products and the future of markets; its application is still proof of concept. Taking it to the next level from pilot to scale calls for a more rational understanding of the risks and devising proportionate mitigations measures. The focus is driven by a need for standards and principles of market integrity, efficiency and resilience that can secure long term financing needs for developing and emerging economies.    

The experience varies from one country to another. As a global practice, we are constantly exploring questions and possibilities of security, efficiency, accountability that can be tailored to the range of fintech experiences we are supporting. It is fair to say that the fintech experience as an expression of how technology is transforming our lives is relatively young, but the pace of change is unprecedented.  Our challenge is to cope with the speed of this transformative power in ways that do not undermine our principles but instead, propel change to empower consumers and small businesses while contributing to functional economies.

Among the key principles that is defining progress at this time is this new foundation of trust that is grounded in data transparency that can be shared by all concerned parties. Allowing systems and consumers to come in synch is reducing costs of error and duplication. Action is faster and risk mitigation is earlier. Understanding what technology provides and what it does not provide is a fundamental element of our advice to clients. 

Fintech holds tremendous potential to transform finance and capital markets.  Institutions like OECD have been looking at data- driven financial markets and what we can learn from that. At the G20, digital financial education is a priority to ensure the benefits of fintech are shared evenly by consumers as they choose financial products smartly. Much of our work on finance and capital markets is also focused on the foundations of a digital economy that will digitally enable millions of people and small businesses to have access to finance, manage a savings account and securely transfer payments. The progress we are tracking in many economies is faster where policy interventions are not interfering with market fundamentals. Regulators reaching beyond their mandates are experiencing success in protecting consumers, business conduct and laying the foundation for financial stability.

The next chapter in fintech regulation will emphasize proportionality and a shift from regulating institutions to regulating activities. Small fintechs have a very different risk profile from large banks. The need for new rules to cover technologies is important. Rules, however, will need to accommodate the rapidly changing pace of technology. We can only succeed if the rules are tech neutral and based on principles so as not to undermine the prospects of fintech applications in many developing countries.

In the past few years, the emergence of fintech hubs has proven extremely valuable in convening the various stakeholders to share their knowledge, stories of success and challenge, their assessment of risks and opportunities. Engaging with the experts, investors, researchers, banks, consumers and regulators, financial institutions is facilitating the flow of new practices and applications while promoting cross border cooperation within and between jurisdictions that can potentially minimize regulatory arbitrage and fragmentation.

It is true that in many developing economies the infrastructure, institutions and information technology to enable fintech is not very advanced. It is also true that fintech will not substitute for market inefficiencies. The reality, however, is that fintech can make up for many of these gaps.

To learn more about our work in Fintech click here.


Alfonso Garcia Mora

IFC Vice President for Asia and Pacific

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