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Harnessing the Fintech Revolution

Artificial intelligence, smartphones, and a wide range of new digital technologies could make banking and financial services significantly more efficient and accessible. But not all disruptive innovations are positive, and policymakers must figure out how to regulate them in a way that serves the common good.

BASEL – Innovation drives progress by disrupting the status quo and forcing established players to raise their game. But innovation can also be destructive if it is not managed properly, and financial innovation (fintech) is no exception.

New technologies developed by fintech startups and the major Silicon Valley firms are making banking and financial services more efficient and accessible than ever before. In fact, new players and technologies have brought the financial industry to a crossroads, and it would not be surprising to see some legacy financial firms suffer the same fate as Kodak, once the world leader in photography. To navigate the road ahead, policymakers must ensure a level playing field that is suitable for new products and business models, while minimizing the risk that disruption becomes destructive.

Fintech startups benefit from cost-effective cloud-based information technology services, an absence of legacy IT costs, and adaptable business models. And as later entrants to the market, they can learn from the mistakes of incumbents and their predecessors. This explains why startups have been making deep inroads into services that boost financial inclusion, such as peer-to-peer lending and mobile remittances and payments.

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