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1、Finance,Competitiveness,and Innovation Global Practice,World Bank Financial Institutions Group,International Finance CorporationFintech and the Future of Finance Overview PaperFintech and the Future of Finance Overview Paper 2022 International Bank for Reconstruction and Development/The World Bank18

2、18 H Street NW,Washington DC 20433Telephone:202-473-1000;Internet:www.worldbank.orgThis work is a product of the staff of The World Bank with external contributions.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank,its Board of

3、 Executive Directors,or the governments they represent.The World Bank does not guarantee the accuracy,completeness,or currency of the data included in this work and does not assume responsibility for any errors,omissions,or discrepancies in the information,or liability with respect to the use of or

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5、uch boundaries.Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank,all of which are specifically reserved.Rights and PermissionsThe material in this work is subject to copyright.Because The World Bank enco

6、urages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.Any queries on rights and licenses,including subsidiary rights,should be addressed to World Bank Publications,The World Bank Group,1818 H

7、 Street NW,Washington,DC 20433,USA;fax:202-522-2625;e-mail:pubrightsworldbank.org.ContentsForewordviiAcknowledgementsixAcronymsxExecutive Summary 11.Introduction81.1 About the Fintech and the Future of Finance Flagship Report81.2 Conceptual Framework91.3 Fintech:What it is and Why it Matters102.Fund

8、amental Drivers of Fintech172.1 Key Technologies:Connectivity and Computing Power172.2 Impact of Technology182.2.1 Unbundling and Reconfiguration of Value Chains182.2.2 New Entrants192.3 Impact of Economic Forces:Scale Economies,Frictions,and Re-Bundling203.Market Outcomes223.1 Impact Across Infrast

9、ructure,Business Models and Products,Players,and Market Structure 223.2 Financial Infrastructure263.3 New Business Models and Products273.4 New Players:Entry,Concentration,and Competition303.5 Implications for Market Structure333.6 Emerging Risks354.Core Policy Objectives and Evolving Tradeoffs374.1

10、 Main Policy Challenges375.Regulation and Supervision415.1 Recent Developments415.1.1 Regulatory Stance415.1.2 Typology of Regulatory Responses435.1.3 Specific Activities445.2 Data Issues465.3 Competition Issues475.3.1 Big Tech475.3.2 Open Banking485.4 Looking Ahead495.4.1 Regulatory Implications505

11、.4.2 Supervisory Implications545.4.3 Winding Down555.4.4 Implications for Financial Infrastructure566.Conclusion58Appendix 1:COVID-19 Acceleration of Fintech Use60Appendix 2.Overview of Recent Market Developments62Fintech Activity Index62Payments63Credit64Remittances65Crypto-Assets and Decentralized

12、 Finance65Transformation of Incumbents and B2B Services67Financial Infrastructure Operators69Platform Models and Embedded Finance70SME Finance70Appendix 3:Open Banking Framework in Select Countries72Appendix 4:Principles for Ethical Use of AI and Data Analytics74Appendix 5:Executive Summaries of Tec

13、hnical Notes75Bibliography94List of FiguresFigure 1.Conceptual Framework for Fintech:Interactions between Markets,Policy,and Development1Figure 2.Growth in Mobile Money Accounts and Transactions (By Volume and Value)Between 2017 and 202011Figure 3.Use of Digital Payments and Fintech Credit13Figure 4

14、.Global Big Tech Credit Is Booming,Overtaking Fintech Credit14Figure 5.Growth in Fintech Investments over the past Decade15Figure 6.Equity Investments in Fintech Companies(Index)16Figure 7.Customer Relationships in the Next Five Years20Figure 8.Market Outcomes in Digital Money and Payments23Figure 9

15、.Market Outcomes in Digital Lending35Figure 10.Expected Shifts in Market Concentration,by Subsector31Figure 11.Expected Evolution of Customer Relationships:Traditional FIs versus New Types of Providers (Views by Sector/Type of Respondent)32Figure 12.Expected Evolution of Customer Relationships:Singl

16、e Core Relationship versus Multiple Providers(Views by Type of Respondent)32Figure 13.Business Risks and Opportunities from Fintech and Digital Transformation(Views by Responding Institution Type)33Figure 14.Potential Barbell Financial Services Market(Illustrative)34Figure 15.Policy Trade-Offs Due t

17、o Fintech Developments40Figure 16.Do Regulators Enable Innovation by Incumbents and New Entrants?By Region42Figure 17.Areas in Which Regulators Have Modified Their Regulatory and Supervisory Approach to Facilitate the Development of Fintech And/or Develop Supervisory Capacity.By Country Income Level

18、44Figure 18.Areas in Which Regulators Have Modified Their Regulatory Frameworks to Address Emerging Risks from Fintech Activities.By Country Income Level45Figure 19.Open Banking Heat Map49Figure 20.The Fintech Regulatory Decision Tree51Figure 21.Worldwide Downloads of Financial Apps during the Pande

19、mic61Figure 22.Use of Digital Channels for Sales and Customer Origination68List of BoxesBox 1.Fintech and the Future of Finance Technical Notes9Box 2.Fintech and the COVID-19 Pandemic29Box 3.The World Bank GroupIMF Bali Fintech Agenda37Box 4.World Development Report 2021:Data for Better Lives47Box 5

20、.The Public Policy Implications of Crypto-Assets and Stablecoins52viiFintech and the Future of Finance Overview PaperThe monumental challenges we face today,from COVID-19 to the war in Ukraine,have reminded us that throughout history,turbulent times are often accompanied by innovation.The technology

21、-enabled innovation in financial services known as fintechis one such example,accelerating rapidly as pandemic shutdowns amplified its importance for maintaining business activity and financial services during a time of social distancing.Every day,headlines attest to the seismic shifts that fintech

22、is bringing to the financial services industry,driven by a dramatic expansion of internet access and smart phone usage,combined with lower-cost computing and data storage.As financial products,payments,business models evolveeven the concept of money itselfso too are market players and the structure

23、of the markets in which they compete.Large telecom and information technology companies,retail chains,along with small start-up companies,are joining traditional banks and non-financial institutions in providing services.Digital financial services can play a significant role in maintaining active cr

24、edit markets to support a resilient and inclusive recovery,leveraging data,analytics,and new business models such as embedded finance.It can also create new opportunities to make the global financial system more efficient and inclusive by overcoming geographic and physical obstacles to services,and

25、by making information more widely available to consumers and providers.Policymakers globally have embraced fintech development to promote innovation and growth of the digital economy.But for regulators and supervisors,digital transformation has also created challenges to balance innovations with saf

26、eguarding competition,financial stability and integrity,consumer protection and data privacy.To help inform policy makers in navigating a complex financial system,this report explores the digital transformation underway in financial services and the implications of fintech on market outcomes,as well

27、 as regulation and supervision.It looks at the range of new market providers,business models,and products which have amplified the need for updated legal,regulatory and supervisory frameworks.ForewordviiiFintech and the Future of Finance Overview PaperThis work builds on the World Bank Groups effort

28、s to support financial innovation at all levels.The World Bank has been supporting governments adapt regulatory frameworks,modernize systems and other financial infrastructure,and ensure high standards of consumer protection.The IFC has been investing in a diverse group of private-sector fintech pro

29、viders for over a decade,promoting the growth of responsible inclusive finance providers that serve tens of millions of customers across global emerging markets.The World Bank Group and the IMF launched the Bali fintech agenda(BFA)in 2018,recognizing the need for regulators and policy makers to acti

30、vely engage as technology transforms finance,to take advantage of new efficiencies and opportunities to broaden financial access and achieve financial inclusion,while safeguarding financial stability and consumer protection.As efforts continue to recover losses from ongoing crises,expanding access t

31、o financial services is one way to support businesses and communities get back on track.For poor people and micro enterprises,the use of basic services such as transaction accounts enables them to send and receive payments securely and gain access to savings,credit and insurance products that can he

32、lp them plan for hard times,invest in their futures and grow their businesses.We hope that this report will be a useful guide for policymakers around the world as they seek to manage longstanding risks and maximize the economic and social benefits of financial innovation.Mari E.PangestuManaging Dire

33、ctor of Development Policy and PartnershipsWorld BankThis Overview Paper distills the key findings and messages of a series of technical notes developed for the“Fintech and the Future of Finance”report,a joint effort by the World Bank and the International Financial Corporation(IFC).This project was

34、 led by Erik Feyen and Harish Natarajan(both World Bank)and Matthew Saal(IFC)under the overall guidance of Jean Pesme,Mahesh Uttamchandani,and Anderson Caputo Silva(all World Bank)and Paulo de Bolle and Martin Holtmann(both IFC).Alfonso Garcia Mora(IFC,formerly World Bank)provided guidance at incept

35、ion and during earlier stages of the report.The team of authors of the technical notes comprised Tatiana Alonso Gispert,Oya Ardic,Gian Boeddu,Pierre-Laurent Chatain,Jennifer Chien,Dorothee Delort,Tatiana Didier,Matei Dohotaru,Karl Driessen,Erik Feyen,Jose Antonio Garcia Garcia Luna,Ivor Istuk,Ruth L

36、lovet Montanes,Harish Natarajan,Ana M.Carvajal,Danilo Palermo,Ariadne Plaitakis,Guillermo Rabadan and Arpita Sarkar(all World Bank)Robert Paul Heffernan,Luis Maldonado,Matthew Saal,Miguel Soriano,Ghada Teima and John Wilson(all IFC)and Giulio Cornelli,Jon Frost,Leonardo Gambacorta and Tara Rice(all

37、Bank for International Settlements).The team appreciates comments provided on this Overview Paper by Bob Cull and Martin Raiser(World Bank),Andi Dervishi,Neil Gregory,Hans Koning,and Nathalie Louat(IFC),and Aditya Narain(IMF).The team thanks Machimanda A.Deviah(World Bank)for editorial assistance,Ma

38、ria Lopez(World Bank)and Sensical Design for design and layout,Elizabeth Price,Melissa Knutson and Nandita Roy(all World Bank)and Henry Pulizzi and Elena Gox(both IFC)for communications support,and Michael Geller and Arpita Sarkar(both World Bank)for overall coordination.AcknowledgementsxFintech and

39、 the Future of Finance Overview PaperAcronymsAIArtificial intelligenceAML/CFTAnti-Money Laundering/Combating the Financing of TerrorismAPIApplication programming interfaceB2BBusiness-to-businessBISBank for International SettlementsCBDCCentral Bank Digital CurrencyCCAFCambridge Center for Alternative

40、 FinanceCPMICommittee on Payments and Market Infrastructures DeFiDecentralized finance DLTDistributed Ledger Technologies eKYCElectronic know your customerEMDEEmerging Markets and Developing EconomiesFIFinancial InstitutionFPSFast payment systems FSAPWorld Bank-IMF Financial Sector Assessment Progra

41、m FSBFinancial Stability BoardFXForeign exchangeG20Group of TwentyG2PGovernment-to-person GPFIGlobal Partnership for Financial InclusionGSMAGSM AssociationICTInformation and Communications TechnologyIFCInternational Finance CorporationIMFInternational Monetary FundLGBTQLesbian,gay,bisexual,transgend

42、er,and queer or questioningMFIMicrofinance Institution NBFINon-banking financial institutionP2PPeer-to-peer xiFintech and the Future of Finance Overview PaperSMEsSmall and medium enterprises SWIFTThe Society for Worldwide Interbank Financial Telecommunication USSDUnstructured Supplementary Service D

43、ata1Fintech and the Future of Finance Overview PaperThe ongoing digitization of financial services and money creates opportunities to build more inclusive and efficient financial services and promote economic development.Countries should embrace these opportunities and implement policies that enable

44、 and encourage safe financial innovation and adoption.Technological advances are blurring the boundaries of both financial firms and the financial sector.New infrastructures,providers,products,business models,and market structures are shaping market outcomes in profound ways.As such,it is necessary

45、to ensure that market outcomes remain aligned with core policy objectives as the financial sector continues to transform and policy tradeoffs evolve.This flagship report explores the implications of fintech and the digital transformation of financial services for market outcomes on one side,and regu

46、lation and supervision,on the other,and how these interact.This Overview Paper provides a high-level perspective for senior policy makers and is accompanied by a set of notes that focus in detail on selected salient issues for a more technical audience.Figure 1 below lays down a conceptual framework

47、 for fintech,and the interactions between markets,policy,and development.Executive SummaryFigure 1.Conceptual Framework for Fintech:Interactions between Markets,Policy,and DevelopmentFinancial and economic developmentInteractInteractProduce and collect large volumesof dataAlleviate frictions and tra

48、nsaction costsUnbundle products and atomizevalue chainsGenerate scale and scope economiesand network effectsFundamental fintech driversBusiness models and productsMarket playersMarket structureFinancial infastructuresMarket outcomesComputingConnectivityCapture fintech benefits for efficiency,inclusi

49、on,competitionMitigate fintech risks to stability,integrity,consumersBalance evolving trade-offsInclusion andconsumer protectionStability and integrityEfficiency and competitionCore policy objectivesRegulatory perimeterRegulatory approachesSupervisory approachesPolicy makingSource:Authors elaboratio

50、n.2Fintech and the Future of Finance Overview PaperThe Fundamental Drivers of Fintech Technology-enabled innovation in financial services,fintech,is re-shaping financial products,payments,business models,market players,market structure and even money itself.The adoption of fintech was accelerated by

51、 the COVID-19 pandemic.Fintech adoption can further financial development by promoting core policy objectives such as financial stability,integrity,inclusion,efficiency,innovation,and competition,and provide firm foundations for the digital economy to flourish.Fintech-enabled business models and pro

52、ducts can support economies to become more resilient and promote an equitable recovery from the COVID-19 pandemic(World Development Report 2022).At the same time,a balanced policy approach is required to also mitigate various risks related to,among others,financial stability and integrity,consumer a

53、nd investor protection,and data privacy.The two fundamental drivers of this wave of fintech are ubiquitous connectivity through mobile,internet-connected devices and communication networks,and low-cost computing and data storage.Together these enable new business models for the delivery of technolog

54、y,such as cloud computing.Applications leveraging these advances,such as e-commerce and mobile apps,create reams of Big Data about users and transactions.Low-cost computing and storage allow that data to be mined for insights.Data and connectivity can alleviate key frictions in the provision of fina

55、ncial services,such as information asymmetries and transactions costs,and have enabled a wide range of data-driven process automation and product applications,from credit and insurance underwriting to investment robo-advisors.Data-driven business models are able to scale rapidly,leveraging positive

56、feedback loops from customer activity that generates data that is used to provide additional services,which in turn generate more user engagement and data.Lenders that previously relied on a borrowers credit history or collateral to fill information gaps about cash flows and ability to repay can use

57、 data-driven credit scores and real time payments data on cash flows to extend credit to previously underserved individuals and small and medium enterprises(SMEs),reaching them at lower cost through mobile channels.These drivers enable the reconfiguration of the value chains that produce financial s

58、ervices.Transaction costs and barriers to information flows have long defined the scope of what was produced within a single firm;reduced transaction costs and friction-free information flows allow a reconfiguration of financial services value chains and product bundles.Connectivity and data exchang

59、e allow a product or service to be broken up into distinct components(atomization),which can be offered by different providers and recombined in new ways.Account opening,for example,has moved from a single-provider service delivered at the bank branch using its own front and back office,to a range o

60、f potential configurations:an account at a bank might be opened through the physical locations or the mobile app of a partner such as a retailer or an e-commerce platform,with ID verification provided by a specialized fintech,the ledger sitting on an outsourced cloud-based IT infrastructure,and cust

61、omer service provided by an off-shore call center.That account might be branded as a product of the bank or might be delivered by the partner as a service powered by with the consumer barely aware of the underlying financial institution.The ability of customers and providers to access information an

62、d move funds more easily has enabled the unbundling of financial services:specialized providers offer single products and customers are able to choose a set of service providers that collectively meets their needs.Rather than using the deposit,payment,and loan products of a single institution,the cu

63、stomer can choose to keep deposits in one(or more),shop around for the best loan offer,and use different payments providers for different usespaying bills,splitting a restaurant bill,or sending money overseas.Customers can now assemble their own set of services and bundle them at the level of app ic

64、ons on a smartphone screen.Critically,the same advances in computing power,data,and connectivity allow services providers,who do not own the whole customer financial relationship(as banks once did),to provide single solutions and new packages of financial services,or rebundle financial services with

65、 other business or commercial activities.Atomization,unbundling,and rebundling are re-shaping business models and product economics as well as the provider landscape.An account holder might choose a 3rd party application for remote access to an account,effectively 3Fintech and the Future of Finance

66、Overview Paperseparating the account-holding institution from the end product and user interfaceand much of the consumer value creation.Economy-wide trends such as wider use of application programming interfaces(APIs)in technology architecture and the rise of multi-party platforms in e-commerce,logi

67、stics,and other sectors further enable information exchanges and the rebundling of financial services,which are being embedded into non-financial products and workflows.The introduction of variable and on-demand(cloud-based)infrastructure,automation,remote channels,and capital-light and embedded bus

68、iness models is reducing costs to customers.The new array of customer-facing providers will,however,take some of the margin that was previously earned by banks,even where regulation may still require that a bank sit behind the product.Market OutcomesWhile the digital transformation of the financial

69、sector remains a work in progress,it is already changing financial infrastructure,products,and business models,bringing new entrants and reshaping incumbents and market structure.Customer behavior is changing and competition increasing.There is potential to vastly improve financial inclusion,particu

70、larly in EMDEs,by overcoming physical and geographic barriers to access and closing the information gaps for credit and other products.Incumbents and entrants alike assign strategic priority to digitizing customer channels,internal processes,and product adoption.Market outcomes will ultimately depen

71、d on a variety of factors including scale and scope of economies,customer preferences for choice versus convenience,and the policy framework,including regulatory approaches to licensing,data,and competition.Digital transformation both creates a need for new infrastructuresuch as fast payment systems

72、,digital ID,and data exchange platformsto support the other market outcomes,and also provides new ways to meet that need.The impact of changing financial infrastructure may be largest in EMDEs,where prior infrastructure is most lacking.Financial infrastructures are no longer the sole purview of the

73、central bank,incumbent payment system operators,and authorized credit bureaus or asset registries.In more developed markets,advances in connectivity between bank systems has enabled faster payments and these are now increasingly being adopted in EMDEs as well.Further,in EMDEs,mobile money systems ar

74、e filling a gap in access to retail accounts and payments,enabling individuals to easily transact at a distance,and digital payments acceptance by SMEs.Mobile money systems have become a significant component of the payments landscape and are taking on some functions usually associated with financia

75、l infrastructure.In India and Estonia,government-provided digital IDs have become part of the foundational infrastructure for access to financial and other services.In most markets,digital ID-verification services are layered on top of existing non-digital government IDs by private sector innovators

76、.Technology has expanded the potential coverage and impact of existing infrastructures such as credit information and collateral registries.Further,technological developments have opened the door for new quasi-infrastructure solutions including innovative providers of alternative data credit scoring

77、 and industry-led factoring and reverse factoring platforms.As technology enables a broader range of providers to offer financial services,the role of both traditional financial infrastructures and quasi-financial infrastructures become essential to new entrants and incumbents seeking to participate

78、 in the market;giving rise to potential challenges related to competition,pricing,and fair access.Technology enables providers to serve and profit from broader markets as well as defined market segments.Digital channels enable providers to reach a broader market without high-cost branch infrastructu

79、re.The low-cost reach of digital banks paired with customer access to digital search enables focused providers to find and serve a dispersed niche customer segment.Automated data-driven processes can serve low-value/high volume segments efficiently and profitably.Products can be configured and tailo

80、red to meet specific needs of a particular consumer or business segment,enabling,for example,the provision of products like trade finance,invoice discounting,and FX services to SMEs that were once reserved for high volume large corporates.The growth of affinity digital banks serving the specific nee

81、ds of segments such as freelancers and gig workers,musicians,or LGBTQ customers,demonstrates that eliminating geographic constraints and product tailoring can enable assembly of a viable customer base within even a narrow market 4Fintech and the Future of Finance Overview Papersegment.These business

82、 model and product innovations are building on mobile access to drive meaningful financial inclusion,making available a wider range of products and services appropriate for previously excluded retail and SME market segments.While technology has enabled niche providers to be economically viable,even

83、in the digital age,classic economies of scale and scope remain strong forces,and convenience and trust matter to consumers.Economies of scale,scope,and network effects in customer acquisition and servicing,and data production and use increasingly drive digital business models.These forces confer adv

84、antages on providers with larger customer bases,such as big tech platforms.Scale and scope economies encourage a re-bundling of financial services,and allow diversified fintech and big tech companies,and other new players to deepen their inroads in core financial products.Furthermore,while unbundlin

85、g gives users more choice,there can be time,effort,and monetary costs to assembling individual financial services from different providers.Simplicity,convenience,and trust therefore continue to be prized by consumers;these factors favor brand names and large players offering a broad range of product

86、s.Providers will optimize across their comparative advantages in technology,skills,reputation,capital,customer base,and other assets to determine how to position along the spectrum from single service within a product value chain,to single product,to broad multi-product player.Strategic positioning

87、as either a focused niche provider or as a large,multi-product provider could lead to a“barbell”market structure outcome.The resulting market configuration would be one of large banks and fintech and big tech firms co-existing with a competitive tail of targeted niche firms.Many firms are taking str

88、ategic decisions consistent with this market path,as evidenced by continued entry of new players alongside the trend to re-bundling,including fintech firms seeking banking licenses.Ecosystems in which small providers can thrive by connecting independently to customers or through partnerships with pl

89、atforms for whom they fill product or service gaps,can enable persistence of this bi-modal market.Crypto-assets,including stablecoins and decentralized finance(DeFi),as an emerging industry and asset class,offer new opportunities,but also significant challenges.Technology is blurring one of the last

90、 functional boundaries,the distinction between an individual and a financial intermediary.Distributed Ledger Technologies(DLT)underpin new decentralized financial infrastructures that reduce or remove the role of intermediaries,enabling users to interact directly on a peer-to-peer basis and providin

91、g open-source platforms that anybody can use and build upon,spurring innovation and network effects and giving rise to new,interoperable financial services and vibrant ecosystems.Crypto-assets,including stablecoins,and DeFi are DLT-based decentralized forms of digital value and financial services th

92、at aim to serve a range of economic functions.They hold promise for financial innovation,inclusion,efficiency,capital formation,and transparency.For example,they could improve the speed and cost of cross-border payments and remittances,which are key for EMDEs.However,these new technologies carry sig

93、nificant risks related to,among others,financial integrity,consumer and investor protection,financial stability,fair competition,and monetary sovereignty.Policy Objectives and Role for Policy MakersAllowing fintech developments to be driven solely by market forces may ultimately not serve core polic

94、y objectives.These objectives include promoting financial innovation,efficiency,and inclusion,while mitigating risks associated with financial stability and integrity;cyber and operational risks;data,consumer and investor protection;fair competition;and(cross-border)regulatory arbitrage.Technology e

95、nabling niche providers targeting a particular product or segment to be economically viable does not ensure open and competitive markets.The tendency to market concentration in particular due to economies of scale and network effects in data,raises concerns about potential anti-competitive conduct,b

96、ut may also deliver inclusion and efficiency,particularly in developing economies that do not benefit from competitive and inclusive financial sectors.A concentrated provider or a big tech crossing over into finance may provide financial services otherwise unavailable.Consumers can benefit from a wa

97、ve of fintech-induced innovation and competition even as markets become 5Fintech and the Future of Finance Overview Papermore concentrated.Proper policy safeguards hence become increasingly important for maintaining fair competition and preventing abuse of market power.Similarly,crypto-assets and De

98、Fi ecosystems could reduce costs and spur innovation,but they currently lack transparency and adequate investor/consumer and financial integrity protections.Policy tradeoffs evolve as countries rise on the fintech adoption ladder to ensure market outcomes remain aligned with core policy objectives.A

99、t lower levels of fintech development,providing basic policy support for innovation and mitigating immediate risks,such as illicit activity and protection of customer funds,may yield good short-term outcomes as policy makers aim to reap innovation,inclusion,and efficiency gains.Consumers have benefi

100、ted from a wave of fintech-induced innovation and competition even as markets have become more concentrated.Policy makers however need to be aware that adoption can increase rapidly and hence will need to improve their monitoring tools and be ready to step in.Strengthening or clarifying policy frame

101、works and improving financial infrastructures become increasingly important to continue to safely support fintech adoption,as fintech reaches more consumers,increases volume and dependence on user data,and as certain providers reach scale.EMDEs have adapted regulatory and supervisory frameworks in r

102、esponse to fintech developments,although market participants indicate there is scope for improvement.Various EMDEs have sought to bring fintech activities within the regulatory perimeter by applying or adapting existing regulatory frameworks or developing bespoke regulations or sandboxes to promote

103、safe innovation.Some countries have done so after a period of observing industry developments and letting some fintech activities go unregulated.This may entail risk.Countries also feel the need to evaluate the appropriateness of their supervisory frameworks as the financial sector undergoes digital

104、 transformation.And,according to market participants,supervisors will need to catch up,particularly in EMDEs.The approach to dealing with fintech failures needs strengthening in many EMDEs,although special wind-down procedures are only indicated in cases where the provider has systemic relevance.Man

105、y advanced economies are adopting comprehensive data protection and privacy frameworks,while EMDEs typically lag.Policy makers have taken a cautious stance regarding crypto-assets.Jurisdictions aim to provide an environment for safe innovation and adoption and are clarifying existing legal,regulator

106、y,and supervisory approaches,or creating new ones;although some jurisdictions have limited or banned some or all crypto-assets activities.In light of their supra-national and decentralized nature,crypto-assets pose domestic and international regulatory arbitrage risks.Various standard-setting bodies

107、 are applying general and transparent principles to provide guidance,set minimum requirements,and promote cross-border collaboration.In doing so,there is a need to focus on economic functions,using a“same risk,same activity,same treatment”approach while aiming for simplicity to ensure a future-proof

108、,technology-neutral stance.However,this remains a work in progress and many national authorities still lag behind in upgrading their policy frameworks and address regulatory fragmentation.Some types of crypto-assets notably global stablecoins have the potential to attract broad public usage as a mea

109、ns of payments including in the De-Fi ecosystems.In this context,public authorities are exploring issuing Central Bank Digital Currencies(CBDCs).Widespread adoption of crypto-assets could challenge the primacy of public money with implications for,among others,monetary policy and financial stability

110、.Some authorities have also noted the concentration,data protection,and privacy risks that large-scale payment service providers can pose,particularly the ones employing a data monetization-led business strategy.It is perceived that a CBDC,being a digital version of fiat currency,could imbue public

111、money with the necessary digital features and enable it to provide a safer and efficient alternative to society,while promoting competition and innovation.The perceived potential of CBDCs to advance financial inclusion is also of interest to some public authorities,notably the EMDEs.CBDCs however ar

112、e not a panacea for financial inclusion since key behavioral,technological,and infrastructural barriers faced by other digital payment solutions may remain in place.Several jurisdictions and international standard-setting bodies are studying design options and developing roadmaps to introduce CBDCs.

113、The scale and pace of adoption and implications are not fully clear at this point,but the general thrust appears to position CBDCs as co-existing with other forms of money and payment 6Fintech and the Future of Finance Overview Papermechanisms.CBDCs could be limited for use by regulated financial-se

114、ctor playerswholesale or open-to-all retail CBDCs.Wholesale CBDCs,given their limited use,do not pose any significant policy challenges.A retail CBDC may however adversely impact bank funding and credit intermediation,impact monetary stability,distort the level playing field,and raise financial inte

115、grity and data privacy challenges.As such,careful attention needs to be given to various implementation options related to,for example,distribution,wallet limits,privacy features,onboarding,and verification mechanisms.At the time of this report writing The Bahamas,Eastern Caribbean Central Bank and

116、Nigeria have already launched retail CBDCs,with a few more in advanced stagesChina,Ghana,and Jamaica have launched large-scale live testing.The guidance emerging from standard-setting bodies,notably BIS-CPMI,calls for striking a balanced approach.This would likely translate to retail CBDCs being dis

117、tributed through regulated banks and payment service providers,being interoperable and co-existing with private money,and come with transaction limits and restrictions on cross-border usage.Policy makers are also actively pursuing other avenues to advance the reach and efficiency of payment systems.

118、The reform actions being pursued include,inter alia,implementation of fast payment systems,expanding access to payment systems to non-bank entrants,promoting open banking,extended hours of operations,and expanding direct access to central bank settlement services to non-bank institutions.These could

119、 also enable smoother introduction of CBDCs later.The cross-sectoral nature of fintech has profound implications for regulatory frameworks.The growing diversity of financial service providers resulting from atomization and unbundling requires re-evaluation of the regulatory perimeter.In this regard,

120、regulators are confronted with three questionswhat to regulate,when to regulate,and how to regulate.Finance has long been intertwined with other commercial activities.Long standing practices related to payment terms for account payables implicitly include credit extension.The terms of such credit ma

121、y come under commercial conduct codes,but is generally not part of financial sector regulation.Further,given atomization and unbundling,multiple financial and non-financial entities are often involved in the production of financial services.Bringing every other instance of finance and all entities i

122、nvolved in the production of financial services under the financial sector regulatory perimeter would not be viable in most markets.At the same time,addressing conduct-related risks might necessitate defining a wider financial sector regulatory and oversight perimeter.The potential“bar-bell”market o

123、utcome requires financial sector regulators to take an active role in collaboration and co-ordination with competition authorities to lower the barriers to entry and keep the market contestable even when there could be natural tendencies for a concentrated market in some financial services.These reg

124、ulatory challenges in turn have implications for supervisory frameworks.The expansion of the regulatory perimeter will have a knock-on effect on supervisory approaches and stretch supervisory capacities.Establishing a risk-based framework to prioritize supervisory actions and calibrate supervisory i

125、ntensity becomes relevant.Further,supervisors will need to marshal new skills through strategic staffing,partnerships,and industry collaborations.Strengthening and expanding data-sharing and collaboration frameworks among domestic authorities and at the international level are important.As the finte

126、ch market evolves,ensuring an orderly exit of unviable market players could become critical necessitating strengthening of wind-down processes and tools and financial sector safeguards.Lastly in this context,the design and governance of financial infrastructures become a key policy lever to fully ha

127、rness efficiency gains and safeguarding competition.Several financial infrastructure components will become central to the financial services chain.Ensuring open,fair,and transparent access to these infrastructures become critical to provide a level playing field and allow new entrants a fair chance

128、 to compete with incumbents.Payment systems,credit reporting systems,and secured transaction registries are particularly relevant.In addition,increasing reliance on remote provision of services and data-driven processes,require new types of financial infrastructure to emergefor example,digital ID,da

129、ta-exchange hubs,and gateways to data held with governments.7Fintech and the Future of Finance Overview PaperIn conclusion,the ongoing digital transformation presents a paradigm shift that has various policy implications,including:Foster beneficial innovation and competition,while managing the risks

130、.Broaden monitoring horizons and re-assess regulatory perimeters as embedding of financial services blurs the boundaries of the financial sector.Be mindful of evolving policy tradeoffs as fintech adoption deepens.Review regulatory,supervisory,and oversight frameworks to ensure they remain fit for pu

131、rpose and enable the authorities to foster a safe,efficient,and inclusive financial system.Anticipate market structure tendencies and proactively shape them to foster competition and contestability in the financial sector.Modernize and open up financial infrastructures to enable competition and cont

132、estability.Ensure public money remains fit for the digital world amid rapid advances in private money solutions.Pursue strong cross-border coordination and sharing of information and best practices,given the supra-national nature of fintech.8Fintech and the Future of Finance Overview Paper1.Introduc

133、tion1.1 About the Fintech and the Future of Finance Flagship Report Digital transformation is re-shaping the market outcomes of the financial services industry.Fintech supports growth and poverty alleviation by strengthening financial development,inclusion,and efficiency and providing the financial

134、services that are required for the digital economy to flourish.To reap these benefits,authorities will need to shape regulatory and supervisory approaches to harness these opportunities while ensuring that core policy objectives,such as stability,integrity,consumer protection,and competition,continu

135、e to be met as the digital transformation of the financial sector continues.Digital finance has enabled providers to leapfrog legacy channels and products,particularly in EMDEs.Financial markets have seen the entry of standalone consumer fintech firms,new B2B services,and big tech firms.Incumbents h

136、ave also embraced technology as a strategic priority to improve their products,lower costs,and compete.Adoption and further innovation have accelerated due to the COVID-19 pandemic,with increased digitization across many sectors,including finance,as businesses and individuals adapted to social dista

137、ncing and hygiene protocols,and sought efficient and effective ways to connect remotely to government and business services(see appendix I).The pandemic thus reinforced what was already a clear trend of rapid advances in technology reshaping the economic and financial landscape globally(IMF and Worl

138、d Bank 2018,Pazarbasioglu et al.2020).This report responds to increasing demand from policy makers for guidance as their financial sectors transform.It explores how fintech is re-shaping the structure of financial services,the implications of fintech in key product areas and for different customer s

139、egments,and potential regulatory responses.Two key questions guided these explorations:1.What are the most important likely market outcomes in terms of(i)types of financial services providers,(ii)types of business models,products,and services,(iii)market structure,and(iv)infrastructures in the finan

140、cial sector in EMDEs over the next five to ten years?2.What policy responses might shape or change these outcomes in support of policy objectives and priorities,given EMDE conditions and constraints?This Overview paper is intended as a non-exhaustive,non-technical narrative of the most salient devel

141、opments and policy issues.It is aimed at senior policy makers and practitioners and draws from the set of eight technical notes(box 1)that make up the overall report.In-depth descriptions of developments,trends,and policy recommendations can be found in those notes.Appendix V contains all the execut

142、ive summaries of the technical notes.9Fintech and the Future of Finance Overview PaperBox 1.Fintech and the Future of Finance Technical NotesData trends and market perceptions1.Global Patterns of Fintech Activity and Enabling Factors(Fintech Activity note)by Tatiana Didier,Erik Feyen,Ruth Llovet Mon

143、tanes,and Oya Ardic2.Fintech Market Participants Survey(Fintech Market Participants Survey)by Erik Feyen,Harish Natarajan,Guillermo Rabadan,Robert Paul Heffernan,Matthew Saal and Arpita SarkarPolicy issues3.Fintech and the Digital Transformation of Financial Services:Implications for Market Structur

144、e and Public Policy(Market Structure note)by Erik Feyen,Jon Frost,Leonardo Gambacorta,Harish Natarajan,and Matthew Saal4.Regulation and Supervision of Fintech:Considerations for EMDE Policymakers(Regulation note)by Tatiana Alonso Gispert,Pierre-Laurent Chatain,Karl Driessen,Danilo Palermo and Ariadn

145、e Plaitakis with contributions from Ana M.Carvajal and Matei Dohotaru5.Consumer Protection Implications of Fintech(Consumer Protection note)by Gian Boeddu and Jennifer ChienSpecific fintech products6.Innovation in Payments:Opportunities and Challenges for EMDEs(Payments note)by Dorothee Delort and J

146、ose Antonio Garcia Garcia Luna7.Fintech and SME Finance:Expanding Responsible Access(SME note)by Ghada Teima,Ivor Istuk,Luis Maldonado,Miguel Soriano,and John Wilson8.What Does Digital Money Mean for EMDEs?(Digital Money note)by Erik Feyen,Jon Frost,Harish Natarajan,and Tara RiceThis report builds o

147、n prior research and work in this space by practitioners from the World Bank Group and other institutions and firms and is part of an ongoing research,advisory,and investment agenda.Prior work has included,but is not limited to,the Bali Fintech Agenda,advisory and policy work with governments,regula

148、tors,and standard-setting bodies,World Bank-IMF Financial Sector Assessment Program(FSAP)analyses of fintech developments,and IFCs accumulated experience as a pioneer investor in emerging markets fintech.This report leverages a unique dataset of fintech adoption metrics,a global survey of banks,MFIs

149、,NBFIs,fintech companies,and others,and the experience of global fintech,finance,and regulatory experts.The World Bank continues to assess fintech developments and advise governments and central banks on fintech issues in coordination with the IMF,FSB,CPMI,G20 GPFI,and other relevant organizations.I

150、FC is complementing its investment in fintech firms and the digital transformation of traditional financial institutions with research and thought leadership on the private sector growth and investment opportunities emerging from fintech adoption,including in areas such as SME finance and embedded f

151、inance.1.2 Conceptual Framework This Overview paper is framed around the development of and interactions between four key factors that are relevant for fintech(figure 1).The conceptual framework captures the implications of fintech and the digital transformation underway in financial services for ma

152、rket outcomes on one side,and policy making on the other,and how these two sides 10Fintech and the Future of Finance Overview Paperinteract.The impact of fintech drivers on market outcomes typically requires a policy response to ensure alignment with policy objectives,which in turn shapes market out

153、comes,producing a feedback loop.Fundamental technology developments shape market outcomes.Advances in computation and connectivity have produced massive amounts of data and alleviated transaction costs and frictions associated with financial services provision.These technological factors,combined wi

154、th scale and scope economies and network effects,have profoundly transformed financial sector business models,products,infrastructures,market players,and market structure.These technological innovations are ultimately not purely exogenous,as innovators respond to market conditions and create the nex

155、t generation of technologies.Core policy objectives such as financial inclusion,efficiency,and stability drive the formulation of regulatory and supervisory frameworks.We distinguish longstanding policy objectives,but these too are not immutable.For example,financial inclusion and consumer data prot

156、ection have emerged relatively recently as policy objectives in their own right.The objective of policy makers with respect to financial innovation is to capture the main benefits of fintech while mitigating associated risks.This requires balancing continuously evolving tradeoffs as the sectors digi

157、tal transformation progresses and market outcomes change.These dynamics also depend on the stage of fintech development in a country.At lower levels of fintech development,the range of services,scale,and penetration is still limited.This stage requires policy makers willingness to support innovation

158、 and to provide basic legal and regulatory clarity.Addressing data gaps that prevent effective monitoring of risks,safeguarding the most vulnerable customers,and ensuring financial integrity objectives are met are key priorities as risks to financial stability,fair competition,and overall consumer a

159、nd investor protection are still relatively low.However,as scale,complexity,and interconnectedness and possible concentration increase,more focus is necessary on safeguarding financial stability,data protection,and fair competition.This requires that legal,regulatory,and supervisory frameworks as we

160、ll as technology and financial infrastructures be reviewed and strengthened to support development of a flourishing fintech ecosystem that remains consistent with policy objectives.1.3 Fintech:What it is and Why it MattersThere are a number of ways to define fintech.The Bali Fintech Agenda,FSB,and o

161、thers broadly define fintech as“advances in technology that have the potential to transform the provision of financial services,spurring the development of new business models,applications,and processes,and products.”(IMF/World Bank 2018)1 In the accompanying technical notes,specific technologies ar

162、e addressed where relevant.The overall focus,however,is on the market trends and regulatory implications of the digital transformation of finance in the context of rapidly digitizing economies rather than on specific technologies that may have currency today and get superseded tomorrow.For that reas

163、on,this report starts its analysis with key drivers of change on the technology side and links these to the underlying economics of financial intermediation:the economic frictions that gave rise to intermediaries,and the economic forces that shaped their scope and scale.Technology can lower costs an

164、d increase the speed,transparency,security,and availability of more tailored financial services.Digitization can reduce frictions in each step along the financial service lifecycle,from opening an account to conducting customer due diligence,authenticating transactions,and automating other,product-s

165、pecific processes,such as assessing creditworthiness.Fintech is therefore characterized by low marginal costs per account or transaction and scale efficiencies.Fintech can also enhance transparency and reduce information asymmetries since digital processes generate a data trail,which can be used to

166、better understand consumers,improve products,manage risks,and promote regulatory compliance.1.See glossary for definitions.11Fintech and the Future of Finance Overview PaperThe use of technology in finance has a long history.In fact,since finance involves high-value activities,there has always been

167、an incentive to use the latest technology,whether that was the finest scales to weigh gold pieces or the fastest communication methods of the day,from Rothschilds carrier pigeons to Reuters telegraph.Digital technology made its way into finance as the second major application of electronic computers

168、 after the military.The first wave of financial technology in the 1950s to 1970s saw bespoke mainframe computer systems become part of the fabric of the back office and then gradually the middle and front offices of most large financial institutions.The late 1960s through the 1980s saw the emergence

169、 of digital technology companies dedicated to serving financial institutions,including core banking system providers like FIS and Fiserv,and payments networks like Mastercard and SWIFT.The current wave of fintech innovation is marked by the technology companies increasingly interacting directly with

170、 customers and becoming the providers of financial services themselves.This wave leverages the increasingly sophisticated technology that is in the hands of increasingly sophisticated customers,along with innovations in business models,to disaggregate services and offer new reconfigurations of produ

171、cts directly to individuals and business users.That has resulted in disruptive changes to the market in terms of the pace of technological advances,who is providing financial services,and how consumers use those services and interact with providers.This is evident,for example,in the statistics on gl

172、obal uptake of mobile-money accounts and increases in mobile-money transactions(figure 2).The Global Findex surveys show that mobile-money operators added more than twice as many accounts as banks in sub-Saharan Africa from 2014 to 2017,becoming the key drivers of increased financial access.A signif

173、icant majority(92 percent)of respondents to the Fintech Market Participants Survey2 indicated that fintech and digital transformation is a strategic priority at the board level for their organizations.2.This survey was conducted from May 2020 to January 2021.330 market participants from 109 countrie

174、s responded,including traditional banks,payments/remittance service providers,fintech firms,insurance companies,non-banking companies,tech companies,telecom companies,industry associations and other financial market players.Given the number of respondents,countries,and subsectors,the survey may not

175、be fully representative of every country and institution type.Please see:“Global Market Survey:Digital Technology and the Future of Finance”(Fintech Market Participants Survey)by Erik Feyen,Harish Natarajan,Guillermo Rabadan,Robert Paul Heffernan,Matthew Saal and Arpita Sarkar.Figure 2.Growth in Mob

176、ile Money Accounts and Transactions(By Volume and Value)Between 2017-2020a.Active mobile money accounts(90 day)(as of December of each year)250,000,000200,000,000150,000,000100,000,00050,000,0000East Asia and PacificEurope and Central AsiaLatin America and the CaribbeanSouth AsiaSub-Saharan AfricaMi

177、ddle East andNorth Africa201720182019202012Fintech and the Future of Finance Overview PaperFigure 2 continuedb.Value of mobile money transactions(USD)(sum of quarterly data for each year)Latin America and CarribeanSouth AsiaEurope and Central AsiaEast Asia and PacificMiddle East and North AfricaSub-

178、Saharan Africa180,000,000,000160,000,000,000140,000,000,000120,000,000,000100,000,000,00080,000,000,00060,000,000,00040,000,000,00020,000,000,00002017201820192020c.Volume of mobile money transactions(sum of quarterly data for each year)Source:GSMALatin America and CarribeanSouth AsiaEurope and Centr

179、al AsiaEast Asia and PacificMiddle East and North AfricaSub-Saharan Africa201720182019202016,000,000,00014,000,000,00012,000,000,00010,000,000,0008,000,000,0006,000,000,0004,000,000,0002,000,000,0000Innovation has taken hold across different areas of financial services to different degrees;payments

180、have been at the forefront.Digital payments have become important in all regions and almost all countries,as maps showing the index developed in the Fintech Activity note demonstrate(figure 3).In some markets,such as Bangladesh,China,and 13Fintech and the Future of Finance Overview PaperKenya,a sign

181、ificant portion of payments volume and value are processed through non-bank mobile wallets.In other markets,bank account and card-based systems(most of which link to underlying bank accounts)dominate.Figure 3.Use of Digital Payments and Use of Fintech CreditIndex100.06.31No dataa.Usage of digital pa

182、ymentsab.Usage of fintech creditbIndex1000No dataSource:Fintech Activity note,World Bank Groupa.This figure shows the index of usage of digital financial services across countries.This index mostly focuses on the usage of digital payments.Countries in grey have missing data for the index.b.This figu

183、re shows the index of finance credit across countries.Countries in grey have missing data for the index.14Fintech and the Future of Finance Overview PaperFintech lending lags payments but is becoming significant.The Fintech Activity note index shows Australia,China,Europe,and the U.S.leading,but imp

184、ortant levels of activity are emerging in other parts of Asia,Latin America,and Africa.BIS and CCAF estimated that global fintech lending was$125 billion and big tech lending$637 billion in 2020(figure 4).3 While total alternative credit was estimated to be less than 2 percent in any of the major fi

185、ntech markets,one recent industry analysis projects global fintech lending to rise to$4.9 trillion by 2030.4 Thus alternative credit could soon be a significant portion of credit creation.To the extent that alternative credit grows in part at the expense of traditional credit providers,the relative

186、shift in market share and credit emission to providers outside the traditional regulated banking system would accelerate.Figure 4.Global Big Tech Credit Is Booming,Overtaking Fintech CreditSource:Cornelli,Frost,Gambacorta,Rau,Wardrop and Ziegler(2021);updated estimates.a.Includes estimates.b.Data fo

187、r 2019.c.Domestic credit provided by the financial sector.Data for 2018.d.Total alternative credit is defined as the sum of fintech and big-tech credit.3.Fintech and big tech credit:A new database,BIS Working Papers,Cornelli,Frost,Gambacorta,Rau,Wardrop,and Ziegler,2020.4.FinTech Lending Market to R

188、each$4,957.16 Billion,Globally,By 2030 at 27.4%CAGR:Allied Market Research.5.Statista 2021 Total value of investments into fintech companies worldwide from 2010 to 2021.Big tech credit grew further during the pandemica8006004002000US dollars billionsBig techFintech20132014201520162017201820192020The

189、se alternative forms of lending are becoming a significant portion of total credit in a few economiesLending volume(US$millions,log)b100,00010,0001,000100100CN US JP KR GBIDNL RU KE DEBig techFintechTotal alternative creditd2.52.01.51.00.50Ratio to total stock of credit(%)cThe range of players in fi

190、nancial services is increasing rapidly,with increasing sums invested into non-bank fintech players.The total value of fintech investments worldwide rose from under$10 billion per year prior to 2013 to$215 billion in 2019 before falling back to only$122 billion in 2020.5 By the first half of 2021,fin

191、tech investments were already at$98 billion(figure 5).15Fintech and the Future of Finance Overview PaperFigure 5.Growth in Fintech Investments over the past DecadeSources:Statista 2022 and Cornelli,Doerr,Franco and Frost(2021).250200150100500in billion U.S.dollarsInvestments in U.S.billion dollars20

192、1020122014201520162017201820192020H1 20219201318.945.467.163.459.2147.9215.4121.598201164a.Global fintech investments between 2010-2021(first half)No.of deals6,0005,0004,0003,0002,0001,00001112131415161718192021Rest of the worldEUUnited StatesChinaUnited KingdomNumber of deals(lhs):b.Growth of inves

193、tment in fintech 2011-21.By region.16Fintech and the Future of Finance Overview PaperFigure 6.Equity Investments in Fintech Companies(Index)Source:Fintech Activity note,World Bank Group.This figure shows the index of equity investments in fintech companies across countries.Countries in grey have mis

194、sing data for the index.Index1000No dataAs these maps show,fintech and digital transformation are relevant across market types.Although developed markets tend to show more activity,there has been very far-reaching impact of financial innovation in many EMDEs.Every regulator concerned with financial

195、stability,financial inclusion,integrity and efficiency of the financial system,competition,consumer protection,or simply with tracking how the macroeconomic levers over money supply and credit are changing,has taken note of the disruptive changes that fintech is bringing to the financial system and

196、the broader economy.17Fintech and the Future of Finance Overview Paper2.Fundamental Drivers of Fintech2.1 Key Technologies:Connectivity and Computing Power Digital technology is reshaping financial services by eliminating many of the frictions that drove earlier integrated business models through ad

197、vances in two key areas:connectivity and computing power.Internet and mobile technology have increased connectivity among consumers,financial services providers,and a range of intermediate service providers and customer interfaces.6 Ubiquitous connectivity has eliminated barriers and reduced costs f

198、or information transfer and remote interactions;this has been particularly important in EMDEs where mobile connectivity has enabled markets to leapfrog fixed line and branch connection barriers.Basic access through at least a feature phone is available to billions of individuals across markets.Low-c

199、ost computing and data storage puts processing power such as smartphones at the end of each of those ubiquitous connection points,enabling complex transactions and services,generating vast amounts of data,and facilitating efficient processing,storage and analysis of that data.The resulting digitizat

200、ion of a broad range of activities,including finance,is creating massive volumes of data,which can be leveraged to broaden and deepen financial services,and better manage risk.These data emerge from a variety of sources,including the location and usage data from mobile phones,the contact information

201、 from social networks,the delivery information from logistics companies,and the sales data from retail outlets and payments networks.This data is being used in a wide range of traditional financial services and new types of businesses to improve credit analysis,process efficiency,risk management,pro

202、duct design,customer service and other areas.Advances in analytics,including artificial intelligence,enable automation,process improvements,and new approaches to risk management.Ubiquitous connectivity and scalable computing and data storage together enable the development of cloud-based computing a

203、nd data-storage infrastructure.The result is an ability to increase processing efficiency,to gather and analyze large data sets,to obtain infrastructure on demand,and to reduce the fixed cost barrier to entry in financial services and other industries.Combined with software-as-a-service and cloud-ba

204、sed analytics offerings,niche-focused financial services can be viable at low volumes,and scale as they grow their customer base.Most fintech startups use cloud-based services to keep their own infrastructure cost low and leverage the scalable and data analytics capabilities of the large cloud provi

205、ders.At the same time,digitization of processes creates more digitally available data,and scalable infrastructure allows storage of reams of data that might otherwise be deleted.Another result of these technology advances has been the emergence of platform-based business models in e-commerce and soc

206、ial media markets.These businesses leverage the connectivity of individuals and businesses,and the ability to quickly and easily collaborate,discover counterparties,and package and deliver a range of digital and physical goods and services.These business models benefit from strong network effects.Ad

207、ding users on one side of a platform market(ride-hailing drivers,for example),creates more value to users on the other side(riders).The platform becomes more attractive on the first side(drivers),attracting even more users.In addition to the presence of a diverse 6.Cisco predicts that more than 70 p

208、ercent of the global population will have mobile connectivity by 2023,and the number of network-connected devices will be three times the population.Fixed broadband speed is expected to almost double,from 60 Mbps in 2020 to 110 Mbps in 2023,with 90 percent of connections faster than 10Mbps.Cisco Ann

209、ual Internet Report(20182023),March 9,2020.18Fintech and the Future of Finance Overview Paperset of counterparts,more participation allows the platform to mine more data about users,behaviors,and preferences,to create better matches,or better tailor its own products and services.A positive growth sp

210、iral can result in a“winner-takes-all”type of outcome,where all market participants want to benefit from the network effects of being on the same platform.The platform operators are embedding financial services to improve the experience of their different“customer constituencies.”For example,ride-ha

211、iling services in many countries seek to facilitate access to credit for drivers to purchase and maintain their vehicles and provide payment services to both riders and drivers to improve the safety and efficiency of the payment process.These platform models are also being adopted for price comparis

212、on,distribution and origination of financial products like lending,investment,and insurance;in some cases by the same real-sector platforms discussed above.2.2 Impact of TechnologyThe technological advances described above have affected every industry,and the impact on financial services has been pa

213、rticularly profound.Many aspects of finance were already digitized behind the scenes;most of the value of global payments flows,for example,were already computer to computer.This wave of technology has resulted in the unbundling of financial products,the reconfiguration of the value chains that prod

214、uce and deliver financial products and services,and the entry of new providers.The initial impact was disaggregation and atomization at the product level,and the potential for a much more fragmented financial services sector at the provider level.However,as explained below,traditional economic force

215、s that shape industry structure,such as economies of scale and scope,search costs,and transaction frictions,remain relevant,albeit in different forms.These counterbalance the tendency toward fragmentation,and in fact are driving a re-bundling of services and potential acceleration of sector concentr

216、ation.2.2.1 Unbundling and Reconfiguration of Value ChainsApplication of these technology advances to producing financial services alleviates fixed-cost constraints as well as frictions related to incomplete information and transactions costs.Increased connectivity and cloud-based computing allow ne

217、w entrants to reach customers without investment in traditional branch and data center infrastructure.Connectivity and vast amounts of user data can increase transparency and trust,and improve credit assessment,thereby reducing the risk cost of lending.The potential to transfer data between differen

218、t providers at different points in production of a financial service enables disaggregation and reconfiguration of value chains.Vertical integration of activities within a single firm is a means of avoiding the transaction costs of working across multiple suppliers and producers to assemble product

219、through market-mediated exchanges of goods or services(Coase 1937,Williamson 1975).Digital connectivity and rich data sharing reduce or eliminate many of the transaction and monitoring costs of market-mediated exchanges.A producer can use outsourcing and partnership arrangements to unbundle producti

220、on and incorporate atomized solutions from specialist providers of component products,sub-processes,or functions.Financial institutions increasingly use specialist providers for customer onboarding,verification and KYC,credit scoring,loan processing,and other services provided under their own brands

221、,and partner with consumer-facing fintech firms and other new brands where they do not have their own products.Interoperable payment systems,APIs,and open-banking protocols has made it even easier to knit together services from different providers.Data,analytics,and automation can result in the mark

222、et demand being met more fullythat is,create more complete marketsby enabling tailoring of products and services to the needs of well-defined customer segments or even each individual consumer.Technology developments accompanied by enabling regulatory frameworks have allowed for the separation of pa

223、yment services from the maintenance of accounts.E-money created a payment service distinct from a bank account,enabling non-bank entities to enter the payment services business.“Open banking”is enabling third-party applications to 19Fintech and the Future of Finance Overview Paperinitiate payment tr

224、ansactions without even having to maintain any account,taking unbundling even further.This reduces the barriers to entry for new providers,including new platform-based business models;7 and enables closer integration between financial services and real-sector economic interactions(embedded finance).

225、The ongoing development of decentralized finance(DeFi)takes this to an extreme by not requiring any account-holding institution.As a result,it is increasingly easy for customers to engage in horizontal unbundling,by choosing different providers of their preferred sets of services.For example,a consu

226、mer may have her salary deposited to a bank account,automatically transfer a portion for day-to-day spend to a neo-bank that offers a card with attractive budget tracking features,use a specialist remittance app for foreign transfers,and invest via one or more other providers,from P2P lending to soc

227、ial stock-picking apps.Internet connectivity reduces the cost of searching for preferred products,and the barriers to moving funds between them.The ease of transferring between accounts and providers allows the customer to re-create the full set of an integrated financial services provider on his or

228、 her own smartphone screen.2.2.2 New EntrantsDigital innovation has reduced cost barriers,allowing the entry of more new players.New entrants dont require investment in physical access points such as branches,ATMs,or agents.Although“phygital”combinations of digital and physical infrastructure contin

229、ue to be needed to serve customers(even crypto-assets users were offered bitcoin ATMs),the increased interoperability and ease of outsourcing arrangements described earlier enable providers without physical networks to partner with others to offer those services where required.Physical networks requ

230、ire scale and capillarity,but a few agent,branch,and ATM networks can serve a market without every provider creating and maintaining one.The current wave of fintech innovation is marked by entry of,on the one hand,start-ups(fintech firms)and large incumbent technology companies(big tech firms)on the

231、 other.The former are often well-resourced given active venture capital interest,but do not have the benefit of an existing customer base and often employ aggressive approaches to take market-share from incumbents on specific products.The latter category has the advantage of having an existing custo

232、mer base and revenue streams and are able to leverage these to scale rapidly and integrate financial services into their existing products and services.Different types of entrants can have very different implications for market structure,and carry different implications with respect to financial reg

233、ulation,competition,and consumer protection policies.Niche providers can offer tailored products and services and find an interested customer base.Although they must still develop a trusted reputation,the elimination of many fixed costs and a reduction in variable and switching costs makes it possib

234、le for a low-cost provider to enter the market from an economic viability standpoint.However,risks and economic forces are more stubborn than costs.Credit,liquidity,market,and operational risks can be reduced or transferred,but not eliminated completely.The attack surface for cyber criminals has bec

235、ome larger,as interconnectivity and the disaggregation of services introduces more links to each product chain and user interface.Respondents to the Fintech Market Participants Survey were asked whether they expect retail and SME customers to have a single core financial relationship or use multiple

236、 providers with no core relationship.36 percent of respondents expect customers to use multiple providers with no core relationship,and 16 percent expect that customers will have a core relationship with a marketplace or platform provider(figure 7).7.On the one hand,enables development of marketplac

237、e/platform business models wherein an entity can help customers to seamlessly subscribe to different services from different providers and,on the other hand,enables development of niche back-end service providers who offer the underlying services,such as maintenance of a bank account or interfaces w

238、ith a payment system,that can be used by others to develop products and services(BaaS)20Fintech and the Future of Finance Overview PaperFigure 7.Customer Relations in the Next Five YearsSource:Fintech Market Participants Survey,World Bank Group.45%36%16%3%Single core relationship with traditional or

239、 new FSPSingle core relationship with marketplace or platformUse multiple providers with no core relationshipOther2.3 Impact of Economic Forces:Scale Economies,Frictions,and Re-Bundling Amidst the entry of new niche players and shifts in business models,economies of scale and scope remain relevant.T

240、he minimum scale for efficient service delivery is now lower for financial service providers that use variable infrastructure services like cloud computing.This however simply shifts the scale effects to the new infrastructure providers;and as such scale remains highly relevant in areas of cloud com

241、puting,data processing,and software platforms.In fact,new forms of scale economies have emerged in connectivity(network effects)and data,alongside previously existing economies of scale in capital,including reputation,or“trust capital”.Customer acquisition costs and funding costs on the provider sid

242、e create economies of scopea niche provider that has a cost of customer acquisition can only amortize that cost across a limited product set;adding additional products can leverage the existing customer base with lower acquisition costs.Consumers and other users also experience frictions in the unbu

243、ndled financial services marketplace.Search,assembly of a package of services,and switching all have costs.For many consumers,there is a cost to the time,effort,and potential confusion of searching for and assembling fragmented services from unbundled providers.Even as operational frictions of movin

244、g funds between providers have been reduced,there are still transaction costs in moving funds in many markets.Consumer usage frictions related to finding the right solutions and managing funds across multiple providers remain a barrier to adoptionsimplicity and convenience have significant value.Ind

245、ividual and business users may prefer to work with a single platform or provider that offers an integrated suite of financial products and services,even if each individual product may be less well-designed,or marginally more expensive,than those of alternative niche providers.These frictions limit t

246、he degree of product atomization,value chain disaggregation,and provider diversity the market will bear.21Fintech and the Future of Finance Overview PaperThe combination of scale and scope economies on the provider side,and frictions on the customer side,confer advantages on providers with larger cu

247、stomer bases or more diversified product sets.Scale effects,alongside economies of scope and consumer convenience factors,encourage re-bundling.Incumbent multi-product banks and insurers have some of these scale and scope advantages,if they can improve customer experiences and immediacy.Fintech firm

248、s are merging or obtaining banking licenses to broaden their product sets.This re-bundling is not limited to combining financial services with other financial services;increasingly financial services are being embedded in non-financial activities.Technology-enabled atomization and unbundling of acco

249、unts from other services has allowed those services,especially payments,to be conducted through applications and service providers separate from the account-holding institution.These atomized payments services are being embedded into non-financial services,particularly activities conducted through d

250、igital platforms.Thus,for example,many ride-hailing services embed a wallet to seamlessly integrate payment into the ride experience.Embedding payments,credit,insurance and investment into ride-hailing,e-commerce,logistics,social media,gaming,and other platforms has enabled big tech firms and others

251、 to make deep inroads into financial services.22Fintech and the Future of Finance Overview Paper3.Market Outcomes3.1 Impact Across Infrastructure,Business Models and Products,Players,and Market Structure The examples of transformative fintech innovations in payments and lending illustrate how the fo

252、ur dimensions of market outcomes identified in figure 1 are being re-shaped,and some of the policy issues that emerge.Digital Money and Payments.Globally,an estimated 770 billion digital payments were made in 2020(CapGemini 2021).8 Mobile money transactions alone numbered 41 billion(GSMA 2020)repres

253、enting a total transaction value of$767 billion across 300 million active mobile-money accounts.9 Sub-Saharan Africa accounted for a bulk of the mobile money transactions in 2020 with 27.4 billion transactions representing a transaction value of$490 billion across 159 million active mobile-money acc

254、ounts.10 Digital payments volumes are growing at around 11 percent a year overall,and at much higher rates in EMDEs(CapGemini 2020).E-money issued by non-banks such as mobile-network operators leveraged the connectivity boom and has enabled millions of users to store value and make transactions from

255、 their phones,most notably in sub-Saharan Africa.As users increasingly shift to smartphone use from basic phones,app-based payments can replace USSD interfaces,offering enhanced functionality(including linkage to bank accounts),speed and convenience as well as generating rich data that can be used f

256、or further services.11 A next generation of digital money is emerging in the form of crypto-assets and central bank digital currencies(CBDCs).Many EMDEs are looking into issuing CBDCs,in part to support the digital economy,improve payments efficiency,and promote financial inclusionalthough CBDCs sha

257、re many of the same challenges as traditional approaches to reach and serve unbanked customers and as such is not a panacea for these aforementioned policy objectives.Further,in addition to the proven models of e-money and agent-based basic banking models,new developments like fast payments,QR codes

258、,and open banking could provide alternative pathways.Figure 8 summarizes how the ongoing digital transformation of money and payments is re-shaping the four dimensions of market outcomes shown in figure 1.8.World-Payments-Report 20219.State of the Industry Report on Mobile Money 2019 10.State of the

259、 Industry Report on Mobile-Money-202111.This transition will take time,due in part to customer familiarity with USSD codes and the tariffs and sometimes limited availability of internet access.A 2021 survey across five developing markets in Africa and Asia found that over 90 percent of transactions

260、continue to be done using USSD codes,despite smartphone penetration rates of 25-40 percent.(Pon,2021).23Fintech and the Future of Finance Overview PaperFigure 8.Market Outcomes in Digital Money and PaymentsSource:World Bank staff.Business models and products E-money spawned a range of new products,f

261、rom wallets to mobile-lending applications(see below).CBDC will further accelerate payments product innovation including cross-border application.Third party payment initiation with payment services enabling a non-bank entity to package payment services as part of a broader range of financial and no

262、n-financial services.Lower the cost of payment services to the point where payment is no longer a profit center but an enabler for other servicesMarket players Non-financial companies such as Telcos,big tech platforms,and NBFIs such as PSPs have become significant players in e-money issuance and wal

263、let operation.Increases usage of e-money and third-party payment initiation has created opportunities for a broad range of payment acceptance facilitators.Organizers of distributed ledgers and exchanges providing on-and off-ramps for cryptocurrencies have become important players in digital money.Ma

264、rket structure New entry reduces market power of existing network oligopolies Network effects lead to concentration Due to network effects and early mover advantages,e-money has emerged as a monopoly or duopoly in many markets.In others,a multiplicity of wallet providers have entered.Crypto-assets c

265、ould in principle offer numerous competing media of exchange and stores of value,but here too network effects have tended to result in a few prominent players.Financial infrastructure Digital money may supplant existing payment system infrastructures with private ledgers processing payments internal

266、ly(e-money issuers)or public distributed ledgers.Crypto-assets can bypass existing payment infrastructures,but have in practice created a new layer of exchange infrastructure;whether that is a permanent feature or a transitory phase remains to be seen.A basic feature phone can replace the need to ac

267、cess a bank branch or traditional payment accountor a POS terminal.As broadly available as that may be,a complete shift to digital payments could exclude those lacking network connectivity,or,in the case of more complex products,those lacking a smartphone.Fast initiation of payments using QR codes a

268、nd APIs,and faster and round-the-clock processing of payments are creating new payment products for making and receiving payments both in-person,remotely and accross-borders.24Fintech and the Future of Finance Overview PaperIn light of their scale,mobile-money networks raise policy issues related to

269、 competition and how authorities would deal with the failure of a large systemically important non-bank e-money issuer.Depending on how it is implemented,a CBDC may adversely impact bank deposits,credit intermediation,and distort the level playing field.In EMDEs,foreign CBDCs could displace local cu

270、rrencies and erode monetary sovereignty.Digital lending.Credit provision through digital channels and using data driven underwriting and risk management has been an important application of fintech.The flow of digital credit was estimated at almost$800 billion globally in 2020,with big tech lending

271、platforms representing 70 percent of this lending volume(Cornelli et al.2021).12 Peer-to-peer lending was an early alternative credit innovation,which was as much a regulatory arbitrage around non-deposit funding as it was a means to leverage alternative data(wisdom of the crowd)for underwriting.Dig

272、ital lenders use enhanced reach and data analytics to increase access to finance to individuals and SMEs previously excluded due to lack of proximity to a branch or lack of credit history.Embedded finance providers ranging from e-commerce and logistics platforms to consumer goods distribution networ

273、ks are able to leverage transactional data on orders,inventory,sales,or receivables to provide working capital.The wide range of providers offering alternative credit raises policy issues over how to treat non-bank lenders;such as whether lending is a regulated activity per se or should only be regu

274、lated in the context of protecting depositors or investors.It also raises issues with respect to consumer protection of the borrower(for example,fair disclosure and usury limits),and credit information sharing with and by non-bank lenders.New technologies and data-based lending give rise to policy i

275、ssues with respect to algorithmic bias,digital exclusion,and data privacy.The remote nature of many of these products raises challenges for KYC,gauging product appropriateness,and consumer disclosures and education.Finally,significant growth of digital lending could have implications for monetary po

276、licy management if alternative lenders are less directly affected by standard policy levers.Figure 9 summarizes how the ongoing digital transformation of lending is re-shaping the four dimensions of market outcomes shown in figure 1.12.BIS Working Papers No 887.Fintech and big tech credit:a new data

277、base.Giulio Cornelli,Jon Frost,Leonardo Gambacorta,Raghavendra Rau,Robert Wardrop and Tania Ziegler(with updated estimates for 2021).25Fintech and the Future of Finance Overview PaperFigure 9.Market Outcomes in Digital LendingBusiness models and products Peer-to-peer lending platforms Mobile phone l

278、ending apps Buy-now-pay-later(BNPL)products Invoice exchange and finance Standalone bank micro loan products Mobile network credit to mobile money agents and merchants Merchant working capital loans via e-commerce platforms B2B marketplace accounts receivable financeMarket players Fintech lenders,in

279、cluding lenders,peer-to-peer,platforms,digital NBFIs,and mobile phone micro-lenders Regulated traditional lenders digitizing their channels and products Big tech embedded finance,including mobile network credit to agents,and e-commerce merchant loans Supply chain participants offering credit in the

280、order-inventory process Lending as a service providers,such as BNPL platforms that plug into online shopping sites and others Third party debt capital providers to enable non-deposit takes to lendFinancial infrastructure Digital payments have become a key infrastructure element for digital lenders O

281、pen data frameworks are foundational infrastructure for alternative credit scoring.Fintech can tap into credit information systems including traditional bureaus and providers of alternative data.Data privacy and consumer protection of data use becomes equally foundational as tech platforms seek to l

282、everage user data and data from other sources to credit score,market services,and engage in collections Necessary infrastructure includes both the legal and regulatory frameworks as well as technical implementations of registries for movable assets and invoices and off-balance sheet financing vehicl

283、es Ancillary services such as trust management and backup servicing become increasingly important for smoothly functioning marketsMarket structure Nimble competitors have taken market share from traditional banks and broadening access to borrowers previously underserved by banks Incumbent financial

284、institutions can catch up,leveraging scale economies and existing customer base and privileged trust position rand(sometimes)access to financial infrastructure Entry of fintech startups as well as big techs make market more contestable but potentially more concentrated as larger players leverage eco

285、nomies of scale in customer networks,data and capital,and tie financial services to other digital servicesSource:World Bank staff.26Fintech and the Future of Finance Overview PaperBeyond these two illustrative examples,other applications of fintech also affect the infrastructure,business models,prod

286、ucts,players and market structures in their respective markets.Insurtech is an example.While now a smaller market than digital payments and credit,Insurtech is also shifting the market structure of producers,brokers,and agents,as well as how policies are underwritten and claims serviced,using data a

287、nd internet-of-things connectivity.Digital wealth management and investment applications have broadened access to products and encouraged more active participation by retail investors in equity,bond,and other markets such as real estate and cryptocurrency.That overall positive impact has also been a

288、ccompanied by some instances of volume concentrations and market volatility as well as consumer protection lapses.In the B2B fintech space,open banking applications are allowing account-to-account payment providers to replace debit networks and clearinghouse payments processing,and credit analytics

289、innovators are providing banks and other lenders with options to replace both internal processes and traditional scoring services.3.2 Financial InfrastructureFinancial infrastructure has advanced significantly,alongside physical ICT infrastructure and mobile telephony.While the latter are the embodi

290、ment of the fundamental drivers in computing and connectivity,financial infrastructure leveraging these is a critical enabler for fintech products and business models.Fintech activity and financial infrastructure such as payments systems,ID infrastructure,and credit information systems,are increasin

291、gly symbiotic.Agent-based delivery models:The concept of agent-based delivery of financial services in EMDEs developed in part due to the lack of traditional payment system infrastructure like ATMs and the lack of interoperability of ATMs.Once mobile money took hold,agents could be integrated with p

292、ayment systems.Faster Payments:Fast payment systems are enabling new business models for payment services.Fast payment systems(FPS)are enable real-time payment to the payee and is accessible through a range of innovative payment channels such as mobile apps and simplified processes(for example,using

293、 QR codes).This enables licensed payment-service providers to innovate on the user experience,spur competition between card-based payment services and bank account-based payment services,and enable integration with customers social and economic lives.Digital ID:Digital identification enables fintech

294、 firms and incumbents alike to implement remote,convenient,and lower-cost customer interactions and data exchange without compromising safety.The Fintech Market Participants Survey notes that incumbent and fintech firms alike expect a significant shift of sales,customer onboarding,and customer inter

295、actions from physical to online.This requires widespread development and adoption of digital ID services.A well-designed digital ID enables remote identity validation,consent,and document signing.This allows exchange of data held by other financial institutions(for example,bank statements),other bus

296、inesses(for example,sales or purchase data)and potentially data from government agencies(for example,tax data and demographic information).Such exchanges can enable a financial institution to meet due diligence requirements not just to onboard customers but also to assess creditworthiness and suitab

297、ility for certain financial services like investment(for example,by validating net worth).The increasing role of digital identity and data in financial services is motivating development of a new class of financial infrastructures.Digital ID is becoming an integral part of the value chain of many fi

298、ntech models and as such market infrastructures for facilitating provision and validation of digital IDs is emerging.These take the form of bringing together providers and consumers of digital ID services and enables customers to assert their identity digitally across different service providers in

299、a seamless mannerexamples include France Connect,eHerkenning in Netherlands and NDID platform in Thailand.Similarly,as the scale and range of data being used increases,new market infrastructures are needed to orchestrate the consent-based exchange of data.These data exchange platforms are now emergi

300、ng in many countries as the implementation of open banking/open finance frameworks expandexamples include SGFinDex in Singapore and Data Empowerment and Protection Architecture in India.27Fintech and the Future of Finance Overview PaperCredit information:Credit information systems are fundamental to

301、 sound lending,and both benefit from and contribute to trends in data and fintech lending.13 Data from credit registries and credit bureaus can ensure sound lending and help prevent over-indebtedness.However,these traditional credit information providers may not have broad coverage of individuals an

302、d SMEs,particularly in EMDEs and among previously excluded segments.Fintech solutions using Big Data and advanced analytics have filled that gap,enabling lending to thin-file/no-file borrowers.Broad participation of lenders in modern,open credit information infrastructure facilitates sound digital l

303、ending.Secured assets infrastructures:Digital invoicing,asset registries,and other infrastructure for secured transactions and asset-based lending are increasingly important drivers of fintech lending.Secured lending instruments can reduce credit risk and broaden access to finance beyond those who h

304、ave traditional collateral(real estate or fixed assets).The introduction of digital asset registries enables fintech lenders to secure loans via automated processes,increasing efficiency and reducing barriers to finance for many borrowers.Lending against digital invoices that have been registered on

305、 a central platform opens access to working capital credit for small businesses that might not be creditworthy themselves but are owed a payment by a larger more creditworthy company.Platform models for the provision of financial services bear strong resemblance to financial infrastructures.Platform

306、-based models are emerging in areas like lending(for example,marketplace lending),investment(for example,mutual fund distribution platforms),insurance(for example,insurance distribution platforms),factoring(for example,national reverse factoring platforms in India and Mexico)and payments(for example

307、,bill-payment platforms and API hubs).These,like a traditional financial infrastructure,serve the industry/market as a whole,facilitate the offering of financial products but itself does not provide it and compete with its participants,and is expected to be seen as neutral with no preference for any

308、 particular participant or provider.Accordingly,they also pose similar policy and regulatory issues.As such,it is possible that these would formally get structured as financial infrastructures and might even be integrated into existing ones.3.3 New Business Models and Products Reduced economic frict

309、ions,ability to reconfigure the value chain,new opportunities for entry,and shifting economies of scale and scope are introducing new products,and business models.Fintech firms are proving nimble at leveraging data,connectivity,and improved processing capacity,and at converting regulatory barriers i

310、nto solvable technology challenges.Payments benefit strongly from the revolution in connectivity and has seen particularly rapid innovation,including in the area of international remittances.Incumbents have been slower to innovate,but many are catching up,leveraging their advantages in trust capital

311、 and regulatory position,and often partnering with fintech companies to use,or provide,B2B services.Big tech firms compound the advantages of fintech firms with large-scale existing customer bases,customer data,and consumer trust.Tech platforms have increasingly embedded financial services into thei

312、r core offerings.Small businesses have been important beneficiaries of the digital transformation of finance.As small merchants participate more in e-commerce,they develop data trails and may benefit from embedded finance provided by online marketplaces.Separately,digitally-enabled efficiencies,tail

313、oring,and risk mitigation have made SME finance a more viable market,with many fintech firms emerging to serve this segment.These market developments are discussed further in appendix II.A few insights from these developments bear highlighting:13.In some markets,fintech lenders are been excluded fro

314、m reporting to registries and from querying;that may be short-sighted since the expansion of lending that is not reported will only reduce the value of the registry data as a picture of the borrowers overall indebtedness.28Fintech and the Future of Finance Overview PaperThe atomization of services a

315、nd recombination of value chains,and the provision of financial services by small focused players and big tech firms alike,calls into question the essence of banking,or what it could be.Is it deposit taking,or maintaining an account ledger,enabling borrowing,or making a credit decision?In a world wh

316、ere each component of a financial service may be provided by a different entity,what matters most and where should regulators focus?Is it on the entity with the customer interface,the balance sheet,the data,the underwriting engine,the payment network,or the servers that are powering all of it?Should

317、 the financial sector be considered a distinct sector when finance is embedded in so many other activities?While regulators can mandate that certain activities be conducted only by specific providers,from the customer perspective,traditional financial providers may become less and less visible.Data-

318、driven business models are able to scale rapidly,but data analytics is not a panacea.The positive feedback loops from customer activity that generates data being used to provide additional services that generate more data,combined with network effects of many digital businesses,can enable rapid grow

319、th.This data can be used for targeted marketing,product tailoring,and credit screening.However,despite the thousands of unique data elements many fintech lenders claim to analyze,most models rely on a small subset of those elements that tend to correspond to traditional credit underwriting approache

320、s.Cash flows,consistency of location,performance in repaying an initial small loan may be gathered from mobile-money transactions and GPS data but need to map to current account,address,and credit history.Credit analyses are still better at comparing historical patterns than predicting the future,pa

321、rticularly after a structural break.In an extreme demonstration of this,the COVID-19 pandemic shifted the prospective profitability of whole industries and the incomes of countless businesses and individuals.Lenders who resumed lending without recalibrating their AI models ran into trouble quickly.B

322、ig techs ability to embed a tailored payment,loan,insurance,or other financial service into any economic,business,or social activity is a powerful disruptor of traditional financial services,and potential driver of financial inclusion.Knowing the transaction context and the history of the borrower,l

323、inking a loan to an underlying business activity,having the ability to take repayment directly out of the cash flows,and potentially to sanction a defaulting borrowersuch as by limiting access to the marketplace in the case of e-commerce lendingall allow the embedded finance provider to more closely

324、 control risk,or to balance credit risk against other business objectives in ways that a bank cannot.This need not require prior credit history.Embedded finance has intrinsic advantages over third-party lending that enable big tech firms to compete strongly in credit markets.Big tech platforms have

325、customers and their data,control transactions flows,and create enough value from core activities to cross-subsidize credit.In the case of buy-now-pay-later lending,for example,the seller often covers the cost of the short-term credit to the consumer to increase sales.E-commerce platforms make workin

326、g capital available to merchants to increase the volume of business the merchants do through the marketplaces.This working capital is not provided for free,but it does not have to earn the same net interest margin a bank would require to generate a similar risk-adjusted return on capital,particularl

327、y since the banks risk would be higher as it lacks the contextual data,collections,and sanctions capabilities.In the aftermath of the COVID pandemic,lenders who are closest to underlying economic activity can contribute to resilience(Box 2).The pandemic disrupted economies in ways that obviate the v

328、alue of prior credit history;this will slow the resumption of conventional lending.Supply chain finance and embedded finance have more direct visibility to the current activities and cash flows of borrowers and can help manage the risks at every stage,from ex ante credit screening and analysis throu

329、gh disbursement and collections,better than most third-party lenders.This linkage of banking and commerce could play an important role in economic resilience and recovery.1414.World Bank,World Development Report 2022,Finance for an Equitable Recovery(forthcoming).29Fintech and the Future of Finance

330、Overview PaperBox 2.Fintech and the COVID-19 PandemicThe pandemic accelerated adoption of technologies across activities,from remote meetings to tele-health to e-commerce.Financial services providers,like other businesses,were forced to find ways to operate and service clients remotely.The increased

331、 use of digital platforms for commerce,logistics,and other activities is generating data,linkages,behaviors,and skills that can enable traditional lenders and new entrants to address some of the challenges of lending into the uncertainties of the recovery phase of the pandemic,including to SMEs.The

332、GSMA(a mobile network association)reports that the number of registered mobile-money users increased by 13 percent globally in 2020,double the forecasted rate.15 Growth was attributed in part to pandemic relief,which many governments delivered through mobile payments.For example,digital government-t

333、o-person(G2P)payments for garment sector workers in Bangladesh were enabled by opening 2.5 million accounts in less than a month,leveraging prior regulatory changes that allowed remote account opening.The World Banks Business Pulse Surveys and Enterprise Surveys documented an increase in the use of digital platforms during the pandemic.Adoption of digital payments in EMDEs surged,as did downloads