Financial technology poses risks to global economic stability, if left unchecked, the International Monetary Fund and World Bank have warned.
In a policy paper released to coincide with the IMF’s annual meeting in Indonesia this week, the organisations said rapid advances in fintech are transforming the economic and financial landscape with many national authorities keen to embrace it.
The bodies said fintech had the potential to support growth and reduce poverty by opening up services to the 1.7 billion adults in the world who are “unbanked”. However, they also cautioned against potential risks posed to the financial system and its customers.
Among the opportunities highlighted in the policy paper are cost reduction, increased efficiencies and competition, as well as the broadening of access to financial services, especially in low-income countries and for underserved populations.
However, the paper also points to a number of risks associated with greater fintech adoption, including consumers and investor protection and threats to financial integrity.
Announcing the new blueprint on Thursday, IMF managing director Christine Lagarde said greater international co-operation was needed to ensure that the opportunities linked to fintech are successfully exploited while financial sector resilience is maintained.
“Fintech can have a major social and economic impact for them and across the membership in general. All countries are trying to reap these benefits, while also mitigating the risks,” said Ms Lagarde.
The new blueprint calls for a push to facilitate new technologies, to modernise legal frameworks and regulatory practices, and to develop robust financial and data infrastructure to sustain fintech benefits.
The IMF and World Bank also announced plans to start developing specific work programmes on fintech.
“Policymaking will need to be nimble, innovative, and co-operative and importantly will need to strike the right balance between enabling financial innovation on the one hand and addressing challenges to market and financial integrity, consumer protection, and financial stability on the other,” the organisations said.
“This balance is critical to deliver the welfare benefits of financial innovation and avoid stalling the development of fintech with the risk of leaving the underserved behind,” the organisations added.
The IMF said it will focus initially on the implications on monetary and financial stability and how international monetary systems and global financial safety nets evolve. The World Bank meanwhile intends to work on using fintech to deepen financial markets, enhance responsible access to financial services, and improve cross-border payments and remittance transfer systems.