Fintech: digital opportunities beyond finance
The fintech revolution has progressed rapidly, bringing various, often unexpected social benefits. Fintech is a host of new technologies promising to deliver financial services in novel, efficient and secure ways. For the more than two billion adults who are excluded from the formal financial system, it carries great significance in terms of both social and international development. Technological advances driving this innovation have happened too quickly for the capacity of global governance to respond adequately. Analysts exploring digitalisation are starting to do this, but governance of these new mechanisms of financial exchange is still evolving. Governance initiatives must appreciate the unique potential of fintech for international development objectives, and promote rather than suppress it.
Heralding economic opportunity and untold social utility, fintech also presents risks and possibilities that global governance and the G20 are only just beginning to grasp. Digital technologies are disruptive, affecting human productivity and well-being, and will likely displace workers by affecting employment. Moreover, they may lead to a greater digital divide and even greater inequality. As concerns regarding inequality drive the backlash against globalisation, the G20 must pay close attention to financial technologies and their potential to improve inclusion while disrupting employment everywhere.
In terms of global governance, fintech is an aspect of digitalisation. Understanding how the G20 has addressed digitalisation may indicate its future governance of fintech. The G20 summits at Hangzhou in 2016 and Hamburg in 2017 took place at a time of rising populism and protectionism, prompting G20 leaders to aim to govern and shape digitalisation to benefit everyone. Only in this way can G20 digitalisation governance address the repercussions of rampant global inequality.
Biggest innovation in living memory
Aspects of fintech innovation are revolutionising economic, industrial and social sectors and the processes beyond – different and removed from the financial services sector that spawned them. A single fintech company can track all manner of valuables and vehicles of value storage – money, securities, treasury bonds, fine wines and art treasures – as well as diamonds sourced from war zones through their respective lifetime value journeys. Blockchain’s distributed-ledger technology is the best example of a financial services application usefully adapted to another purpose. Its tamper-proof and decentralised records transfer value, and can store innumerable aspects of human existence, including birth and death certificates, education and employment records, property ownership rights and records, insurance claims, votes – virtually any transfer of value. Blockchain enthusiasts declare that what the internet did for storage and the transfer of information, blockchain does for value, making blockchain the biggest economic innovation in living memory, as important as the industrial revolution.
Cryptocurrencies in illicit economies prompt concern. Hindered by the pace of technological change, governance responses to fintech – as varied as the technologies that prompt them – are just emerging. Countries eager to grasp potentially transformative economic opportunities strive for fintech development, while regulatory bodies struggle to keep pace without stifling innovation.
Globalisation to work for all
The G20’s governance of digitalisation should allow the potential of fintech innovation and artificial intelligence (AI) to realise the G20’s core mission of making globalisation work for all by offering coordination of a diverse, interconnected world. International coordination of fintech and AI could be key to redressing the inequality wrought by globalisation.
Digital technologies enable unprecedented interference of sovereignty. In its mission to ensure global financial stability, the G20 should respond to the digitalisation of finance and fintech innovation flexibly, with its response expanding and evolving in tandem with fintech itself. For the G20 members to maintain their sovereignty domestically and globally, they should work with global governing bodies and national banks to regulate the emerging digital technologies that are shaping the future of everything from cross-border payments, cryptocurrencies and know-your-client verifications – which could disrupt sovereign state functionality. Working alongside fintech development, fostering innovations will produce digital technologies that grow in tandem with G20 members’ state sovereignty.
