Featured Product

    FED Governor on Potential of Fintech in Full Stack Financial Inclusion

    October 17, 2018

    The FED Governor Lael Brainard spoke at a conference in Boston about the search for full-stack financial inclusion, driven by fintech innovations. She examined lessons learned form the first wave of fintech while discussing the metrics used to gauge financial inclusion, including access to a bank account, adoption of mobile phones and the resulting data, and access to credit via fintech lending. She emphasized the importance of learning how to assess financial health more effectively, along with the development of tools that are designed to address the challenges underlying financial inclusion. She added that these tools can be built on a new generation of platforms and other basic building blocks, which can be used in combination to develop more effective full-stack solutions.

    According to Ms. Brainard, a sustainable solution is likely to require a comprehensive understanding of the needs of financially underserved families and small businesses. Policymakers and financial services providers are beginning to assess financial inclusion in more nuanced ways. Moreover, new technological building blocks can be increasingly used to build more full-stack approaches to financial inclusion. He also discussed the role of faster payment systems in solving the issues faced by the underserved categories, such as individuals living from paycheck to paycheck and the small businesses with immediate working capital needs. New platforms like faster payment systems have the potential to combine with other technological improvements, such as cheap access to cloud computing and an open-source approach to artificial intelligence, to create more full-stack approaches to financial inclusion. Mobile apps are also using faster payments and cheap accounts to offer consumers the tools to smooth volatility in their incomes. 

    She added that a new generation of offerings experiments with using machine-learning tools and data aggregation to study consumers' expense and income flows to offer credit to consumers with little to no traditional credit histories. While access to accounts and to credit may be beneficial, they are by no means sufficient to ensure financial resilience on their own, said Ms. Brainard. She highlighted that the market penetration of fintech lending (often in conjunction with bank partners) has increased over the years, although it is unclear how much of this fintech lending is making a significant dent in financial inclusion, as opposed to serving prime and near-prime consumers in the United States. A 2017 study by TransUnion found that fintech lenders focused 59% of their originations in the near prime and prime risk tiers by the end of 2016. Researchers at the Federal Reserve Banks of Philadelphia and Chicago found that at least some fintech lenders were able to slot "some borrowers who would be classified as subprime by traditional criteria" into better loan grades. However, the differences from existing channels may not be large: TransUnion found that nearly 10% of loans originated by fintech lenders were to subprime consumers, compared to 14% for the overall market for personal loans.

    The FED Governor also offered evidence that the new technologies are lowering transaction costs by automating the customer interface and underwriting processes. A recent analysis by staff at the Federal Reserve Bank of Atlanta notes that automated fintech platforms have lower operating costs relative to storefront payday lenders. A recent study by staff at the Federal Reserve Bank of New York found that fintech lenders process mortgages on average 20% faster than traditional lenders. However, alongside these promising developments, there have also been some cautionary tales from the early wave of fintech. While financial innovation may hold great promise, a lot of work is needed to ensure it will be able to reach communities that lack infrastructure for digital service delivery.

    Finally, she emphasized that financial literacy and consumer protection are critically important, regardless of whether financial services are delivered through traditional means or smartphone apps. Digital delivery can expand the reach of traditional financial education systems by providing consumers with online and mobile education, just-in-time information, and interactive financial tools to evaluate their options. Data show that a quarter of all accounts worldwide are "inactive" and customers that are provided financial accounts quickly return to the cash economy. The Findex database, at an international level, shows that roughly a fifth of adults without a financial account cited a lack of trust in the financial system. Ms. Brainard concluded that a challenge for regulators is "to ensure trust in financial products and services by maintaining the focus on consumer protection, while supporting responsible innovation that provides social benefits."

     

    Related Link: Speech

    Keywords: Americas, US, Banking, Financial Inclusion, Fintech, Fintech Lending, FED

    Related Articles
    News

    PRA to Elaborate on Approach to Transposition of CRD5 by Mid-December

    PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.

    November 30, 2020 WebPage Regulatory News
    News

    SRB Sets Out Work Program for 2021-2023

    SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.

    November 30, 2020 WebPage Regulatory News
    News

    EIOPA Consults on KPIs on Sustainability for Non-Financial Reporting

    EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.

    November 30, 2020 WebPage Regulatory News
    News

    ECB Publishes Guide on Management of Climate and Environmental Risks

    ECB finalized guidance on the way it expects banks to prudently manage and transparently disclose climate and other environmental risks under the current prudential rules.

    November 27, 2020 WebPage Regulatory News
    News

    BCBS Amends Capital Treatment of Non-Performing Loan Securitizations

    BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.

    November 26, 2020 WebPage Regulatory News
    News

    BoE to Move Statistical Data Collection to BEEDs Portal

    BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.

    November 25, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Standards and Guidance for EFS Data Collection

    APRA published the updated reporting standards and guidance for the collection of Economic and Financial Statistics (EFS), following a consultation process. Also published was a response letter to the feedback received on the proposal for amending the EFS reporting standards and guidance.

    November 24, 2020 WebPage Regulatory News
    News

    EC Consults on Criteria for Environmentally Sustainable Activities

    EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable.

    November 20, 2020 WebPage Regulatory News
    News

    IFRS Examines Incorporation of Climate Risk Issues into IFRS Standards

    The IFRS Foundation published material highlighting the ways in which existing requirements in IFRS standards require companies to consider climate-related matters when their effect is material to the financial statements.

    November 20, 2020 WebPage Regulatory News
    News

    FSB Report Outlines Progress on Interest Rate Benchmark Reform

    FSB published a progress report on the implementation of reforms to major interest rate benchmarks, including the London Inter-bank Offered Rate (LIBOR) benchmark.

    November 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6167