The problems and advantages of fintech

While the average person finds financial technology (fintech) a convenience, the powers that be are getting worried. For example, the Financial Stability Board of the G20 has taken enough interest to issue a report on the problems that fintech presents. We can be sure that fintech will be a subject for discussion when the G20 meet in China later this year.
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After all, fintech threatens to disrupt established financial infrastructure and institutions, which means there is a need for a regulatory framework that protects the status quo. However, how long the status can remain quo is debatable. Digital technology has a history of rapidly evolving any industry to which it is applied. Also, there is a big difference between restrictive regulation and controlled disruption.

Distributed ledger technologies, cryptocurrencies and blockchain applications do present considerable challenges to the established financial system. On the one hand, innovations like cryptocurrency can provide the means to keep economies expanding when traditional methods, like setting interest rates, have limited applicability.

We now live in a less predictable economic ecosystem and nations and financial institutions are being forced to confront the fact of digital technology and the speed with which it can change the game.

The Financial Stability Board is supposed to monitor possible problems in the financial sector and recommend regulation.  Unfortunately, the fluidity of fintech, its speed and ability to change rapidly, makes regulation a problem and provides an outlet for criminal activities that would be much more difficult under traditional protocols. If the history of software development has shown anything, it is that what one man can invent, another man can circumvent. And regulation always tends to be one step behind innovation.

Can the powers that be keep regulation running ahead of technology? It’s unlikely since no one really knows the effect of new technology until it is deployed and has been operating for a while. So, both the problems and advantages of fintech will continue to be with us in the days to come.

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