"FinTech and the Future of Central Banking: A Latin American Perspective"
Annual Cambridge Centre for Alternative Finance Conference
Keynote speech by Mr Mario Marcel
Governor of the Central Bank of Chile
June 2017
Ladies and gentlemen,
Let me first thank the organizers for inviting me to participate in this Conference. This gives me the
opportunity to link my present job as Governor of the Central Bank of Chile, with my past, as a
student of Economics at Cambridge, nearly 30 years ago.
At that time, the Judge Business School was still in the making, but I am glad to see how it has grown
to become a world leader in business education. The Cambridge Centre for Alternative Finance,
housed at JBS, is a good example of how a centuries-old university can undertake vibrant, emerging
subjects and use good intellectual discipline to tackle them.
I attend this meeting not as somebody that is "navigating the contours", but as a head of a
quintessential mainstream economic institution-a Central Bank. In the past few days I attended
the BIS Annual General Meeting of Governors and the ECB Forum on Central Banking, so it is good
to switch to a more distended environment. Yet I am not the only one coming from that different
world, since FSB representatives are also here alongside Juan Ketterer of the Inter-American
Development Bank, with whom I was lucky to work a few years ago.
Several central bankers have spoken about FinTech in the last couple of years, but I bring a little
difference; my Central Bank is in an emerging country, where the usual challenges of controlling
inflation and securing financial stability are intertwined with the distinct features of a developing
financial sector. This makes the achievement of central bank goals a little more difficult and
underscores their relationship to longer-term development objectives.
So in this keynote I would like to discuss the difference that FinTech can make to the delivery of the
responsibilities of a Central Bank of an emerging country. Note in this respect that since banking
regulation in my country is in charge of a separate entity, I will focus mostly on the macro stability
dimensions of financial markets. Just in case I issue some nonconventional opinions, let me also
state that they do not necessarily represent the official view of the Central Bank of Chile or its Board.
[SLIDE 1] In what follows, I will first provide a quick overview of the main features of central banking
and its relationship with the financial sector as well as the way the latter works in a developing
country, including its role in the transmission of monetary policy. Then I will identify which features
of FinTech development can have a greater influence on central banking, financial stability and
financial deepening. From here I will highlight some dilemmas that central banks and regulators face
in dealing with FinTech in developing countries. Finally, I will summarize some features of the
Chilean economy that, I believe, may help resolve them.
Slide 1
Agenda
1. How a central bank faces the world
2. What difference can FinTech make?
3. Common dilemmas for central bankers and regulators
4. FinTech and features of the Chilean economy
A Central Bank view of the world
A few years ago, when I was Budget Director in Chile and talked to my colleagues from different
countries I thought that budget officials were more or less the same everywhere. That was because
I didn't know central bankers yet. Central Banks face similar objectives and use similar tools all over
the world. Moreover, economic thinking and policy development since the aftermath of the Asian
Crisis have made them look even more alike.
[SLIDE 2] First, almost all Central Banks have inflation control and financial stability as their core
goals. Some may add employment, growth or even welfare objectives, but as long as the latter are
correlated with the former most of the time, they don't make much of a difference. To meet the
twin core objectives, central banks apply monetary policy and macro financial regulations, like
liquidity, reserve and capital requirements.
Monetary policy and macro stability regulations operate through the financial system, particularly
banks. Most of money in the economy is currently made of deposits that result from the maturity
transformation-from short-term deposits into medium term loans-that banks perform. Banks
meet their liquidity needs for disbursement and reserve requirements by borrowing from the
central bank. Monetary policy is then operationalized by setting the rate at which commercial banks
can store or withdraw money from the central bank.
Slide 2
Central bank functions and tools
▪ Monetary policy and macro regulations operate through the financial
system, particularly banks
▪ Most of money in the economy is currently made of bank deposits
▪ Banks resolve their liquidity needs-emerging from disbursement and
reserve requirements-by borrowing from the central bank
▪ Monetary policy is then operationalized by setting the rate at which
commercial banks can store or withdraw money from the central bank
[SLIDE 3] Today money and financial operations are overwhelmingly composed of balance sheet
records. For this reason, banks need to be strictly regulated and the central bank must manage
monetary policy to ensure stability in the purchasing power of money. The transmission of monetary
policy to the economy and, in the end, to inflation, depends on the smooth operation of commercial
banks. At the same time, banks operate as a network and provide liquidity to all sorts of activities.
Any disruption in the operation of a bank or in the transmission or provision of funds can have
serious economic consequences.
Slide 3
Commercial bank balance sheet
Banking sector balance sheet
(percent of GDP)
ASSETS LIABILITIES
Loan Portfolio 88 Demand deposits 22
Commercial 48 Time deposits 46
Consumer 10 External credit 5
Mortgage 24 Debt instruments 23
Comex 5 Derivatives 5
Cash 7 Other 11
Other liquid 12
Derivatives 5 EQUITY AND RESERVES
10
Other 9
All figures as of December 2016, based on individual balance sheet. Source: Central Bank of Chile based on SBIF data.
[SLIDE 4] Hence, a key concern of a central bank is risk. Risk from external shocks that may threaten
price stability; risk of misjudging the macroeconomic scenario and make wrong policy decisions; risk
of changes in the behaviour of banks that may compromise the transmission of monetary policy to
market rates; risk of liquidity excess or shortage in the banking sector; risk of bank insolvency; risk
of disruptions in the flow of funds at the interbank or retail level; risk of risk misjudgement, and,
ultimately, risk of compromising trust.
Slide 4
What do central banks worry about?
▪Risks
Risk from external shocks that may threaten price stability
▪ Risk of misjudging macroeconomic projections
▪ Risk of changes in the behaviour of banks that may compromise the
transmission of monetary policy to market rates
▪ Risk of liquidity excess or shortage in the banking sector
▪ Risk of bank insolvency
▪ Risk of disruptions in the flow of funds at the interbank or retail level
▪ Risk of risk misjudgement
▪ Risk of compromising trust
Slide 5
The financial sector, central banking, and
economic development
▪ Development is closely associated to financial development, both historically
and comparatively across countries
▪
Efficient financial services are essential for an economy to grow and to make
growth self-sustaining and inclusive
▪ While advanced economies are characterized by broad and deep financial
markets, finance in developing countries is usually fragmented, unstable and
costly
Thus, while technologically-supported financial products can potentially improve the quality and
speed of financial services to the public or lower their cost, a central bank would focus on how they
can influence the risks they face-either to lower or raise them.
The financial sector, central banking, and economic development
[SLIDE 5] Development is closely associated to financial development, both historically and
comparatively across countries. Financial services are essential to channel domestic and external
savings to investment, support personal and business projects, cushion risks, and reduce the
transaction costs of economic exchanges. Efficient financial services are essential for an economy
to grow and to make growth self-sustaining and inclusive. [SLIDE 6] While advanced economies are
characterized by broad and deep financial markets, finance in developing countries is usually
fragmented, unstable and costly.
Slide 6
Financial development and deepness :
international comparison
Financial Development Index: Financial Development Index:
Broad Money to Total Reserves
Peer Group Average Selected Countries
Ratio, 2015
(index) (index)
(ratio)
1.0
0.8 Advanced Emerging Low Inc. and Dev. 50
0.8 40
0.6
0.6
30
0.4
0.4
20
0.2
0.2 10
0.0
FD
0.0
0
Depth Depth R.
Access Access
US
Markets
India Chile Peru
Chile
Efficiency Efficiency Japan China Brazil Africa Brazil China
Overall States Kenya
Poland Tunisia Bolivia
Institutions Gambia Uganda Mexico
Ecuador Sweden
Portugal Armenia
Morocco Uruguay
Germany Paraguay Australia
Nicaragua Colombia
Argentina
Financial Financial Overall
Philippines
Switzerland Bangladesh
South
Institutions Markets Rating United Dominican
Source: Sahay et al. (2015), "Rethinking Financial Deepening: Stability and Growth in Emerging Markets," IMF Staff Discussion Note 15/08 and World Bank.
Slide 7
Banking services coverage: international
comparison
Adult population with debit or
Adult population with any type of Adult population with savings in
account in a financial institution financial institutions
credit card
(percent) (percent) (percent)
100 90 Debit Credit 50
90 45
80
80 40
70
70 35
yo) yo) yo)
60
institutions
15 15 15
60 30
> > >
50
accounts
50 25
Cards
pop pop pop
40
financial
of 40 of of 20
in
30 Saving
(% (% (%
30 15
20
20 10
Accounts
10
10 5
0 0 0
OECD High Middle Low LAC OECD High Low LAC OECD High Low
All figures at the end of 2014. Source: SBIF (2016), "Financial Inclusion Report in Chile 2016".
[SLIDE 7] In middle and low-income countries, the proportion of population holding any type of
account in a supervised financial institution under supervision amount to 37% and 20%, respectively.
These figures are far below the 92% and 90% of OECD countries and high-income countries. The use
of bank-intermediated debit and credit cards and savings in financial institutions follows a similar
pattern.
[SLIDE 8] Insurance services contribute to deepen the financial system due to their long-run
investment perspective. Both life and non-life insurance is far less extended in emerging markets
compared to high-income OECD countries.
Insurance companies coverage: international
comparison
Penetration of the insurance industry, 2015
(direct gross premiums as a percent of GDP)
40
35
30
25
20
15
Life Non-life
10
5
0
IL
IE JP IT FI SI IS
FR SZ SE PT ES CL EE CZ PL SK LV PE
LU KR US DK UK DE BE AT NL CA NZ BR AR GR TR
AU NO CO HU
MX
Source: OECD.
[SLIDE 9] The development of finance in developed countries of course didn't prevent them from
getting into a big crisis a decade ago. But if you think that was big you should consider crises in
developing countries, like the debt crisis of the early 1980s, the Tequila crisis of 1994 or the
economic and political crisis in Argentina in 2001. [SLIDES 11 and 12] They devastated the entire
financial system of those countries, evaporated or froze deposits, brought countries into deep
recessions and massive unemployment and were only resolved after massive bailouts and debt
write offs.
Slide 9
Financial crises in emerging countries
25 Worst Financial Crises in History
% change Number of years
Peak to Peak to Peak to Severity
Ranking Year Country trough trough recovery index
1 1926 Chile -46.6 3 16 62.6
3 1983 Peru -32.0 11 25 57.0
4 1931 Uruguay -36.1 3 17 53.1
6 1929 Mexico -31.1 6 16 47.1
8 1890 Brazil -21.7 4 21 42.7
10 1890 Uruguay -21.0 2 19 40.0
14 1929/1933 US -28.6 4 10 38.6
12 1980/1985 Argentina -21.8 11 18 39.8
15 1994 Venezuela 5.3 11 14 8.7
17 2008 Greece -24.0 6 12 36.0
18 1931/1934 Argentina -19.4 3 15 34.4
21 1981 Mexico -14.1 7 17 31.1
23 2001 Argentina -20.9 4 8 28.9
24 1980 Chile -18.9 2 8 26.9
25 2002 Uruguay -18.9 4 8 26.9
Sources: Reinhart, C. and K. Rogoff (2014), "Recovery from Financial Crises: Evidence from 100 Episodes," Working Paper 19823, NBER.
Financial distortions that influence macro
stabilization
▪ Liquidity constraints prevent relative prices from helping macro adjustment
▪ Inefficient intermediation of savings reduces the return on real investment
and balance incentives in favor of speculation and rent-seeking
▪
Underdeveloped financial systems are also prone to concentration and
vertical integration, at the cost of clients and systemic risk
[SLIDE 10] The latter are rather dramatic examples of the challenges posed by protracted financial
development for price and financial stability, the twin goals of central banks. But such challenges
can take many more shapes. A low coverage of banking and credit means that a substantial fraction
of the population and companies may not have access to liquidity when they need it, nor credit to
live through a contingency. Liquidity and credit constraints prevent relative prices from resolving
disequilibria, amplifying the impact of shocks on employment, production and consumption.
Inefficient intermediation of savings reduces the return on real investment and tilt incentives in
favor of speculation and rent-seeking. Shallow capital markets may be unable to hedge market risks,
particularly exchange rate and term exposures, and foster concentration and vertical integration.
Underdeveloped financial services can also contribute to economic informality. What is the point in
registering a business, complying with regulations and paying taxes if you cannot get funding for
working capital or investment projects? The financial dimension of informality is shadow,
unregulated banking, which is prone to insolvency, abuse and fraud. There is ample evidence that
economic and financial informality-albeit a rational alternative for people with little choice-is a
major obstacle for emerging economies to grow in a more inclusive way.
Thus, while central bankers would normally emphasize that their focus is on short-term
macroeconomics and price stability, there is little doubt that a more efficient, deeper and inclusive
financial system would make things substantially easier for them and would provide a lasting push
for development.
What difference can FinTech make?
[SLIDE 11] The central bank and commercial banks have been traditionally close because maturity
transformation and fractional banking is in the DNA of universal banking, that is, the ability of
commercial banks to provide a large set of interrelated services to the public.
In contrast, FinTech refers to those technologically enabled innovations in financial services that
could result in new business models, applications, processes or products with an associated material
effect on the provision of financial services.1 Thus defined, the scope of products or activities that
can be catalogued as FinTech is quite broad. Moreover, products or services that are nowadays
commonly or massively used could have been considered FinTech, e.g. banknotes, cheques, credit
cards, ATMs, and electronic transfers.
What makes a difference today is partly the speed at which change is happening and how different
developments-programming, encryption, mobile devices-can combine to produce new financial
services. But more important is that these innovations have the potential to "unbundle" key banking
functions, like payments, risk transformation, risk sharing, and capital allocation. This can shatter
the architecture upon which central banks rely.2
Slide 11
The irruption of FinTech
▪
FinTech involves a number of developments that allow the unbundling of financial
services
▪ Financial Stability Board | Technologically enabled innovation in financial services
that could result in new business models, applications, processes or products with an
associated material effect on the provision of financial services
▪
The scope of products or activities is quite broad. Moreover, products or services that
are nowadays commonly or massively used could have been considered FinTech, e.g.
banknotes, cheques, credit cards, ATMs, an electronic transfers
[SLIDE 12] To understand the potential impact of FinTech on central banking and on economic
development it is useful to identify specific dimensions of FinTech innovation, whose impact
monetary policy, financial stability and economic development can be assessed one by one. These
include the following:
1
FSB (2017), "Financial Stability Implications from Fin Tech, Supervisory and Regulatory Issues that Merit
Authorities' Attention," June 2017.
2
Carney, M. (2016), "Enabling the FinTech transformation: Revolution, Restoration or Reformation?" Speech
delivered Lord Mayor's Banquet for Bankers and Merchants of the City of London at the Mansion House, on
June 2016.
FinTech categories
▪ Five categories:
1. Payments, transfers, clearing, and settlement: closely linked with
financial inclusion
2. Lending and borrowing: closely related to financial intermediation
3. Risk management: closely related to the insurance sector
("InsurTech")
4. Market support: the "tech" part of FinTech can make simpler or
more efficient processes
5. Investment management: E-trading, smart contracts; robo advice
Payments, transfers, clearing, and settlement. Mobile payments (either by banks or non-bank
institutions), digital wallets, digital currencies and the use of distributed ledgers for payments
infrastructures. These can contribute to the management of massive numbers of transactions as
well as to the transfer and settlement of large sums among financial institutions.
Lending and borrowing. The most common FinTech innovations in this area are crowdfunding and
online P2P lending platforms. These applications are closely related to financial intermediation, a
core and heavily regulated element of financial institutions. FinTech applications in this field are still
a small fraction of overall credit but in some jurisdictions are growing very rapidly.
Risk management. FinTech companies participating in the insurance sector ("InsurTech") are getting
traction in many jurisdictions. They have the potential to affect not only marketing and distribution
of insurance, but also underwriting, pricing of risks and settlement claims3. Risk management also
concerns the commitment and registration of guarantees and collateral in credit operations.
Market support. The "tech" part of FinTech can provide simpler or more efficient processes such as
ID verification, data storage and processing (cloud computing), or the execution of orders through
smart contracts. The access and contestability of information is an important issue here.
Investment management. This dimension includes both e-trading platforms that allow consumers
to invest directly through its computer on all sort of assets, and FinTech innovations that offer
automated advice on financial services (robo-advisors), including investment and portfolio
management.
3
IAIS (2016), "FinTech Developments in the Insurance Industry", February 2017.
Opportunities
▪
Blockchain/Distributed Ledger Technology (DLT): efficiency of financial
payments
▪
Real time order-settlement-payment-operational and counterparty risk
▪ benefits for financial stability may include:
i.The Increased market efficiency
ii. Enhanced risk measurement
iii. Lower trade costs, robustness against cyber-attacks, and less need for collateral
iv. Stronger wealth-channel for monetary policy
▪ Crowdfunding and P2P may reduce systemic risk-an affordable alternative
▪
FinTech market support tools can also contribute to financial stability
Opportunities
[SLIDE 13] Blockchain/Distributed Ledger Technology (DLT) can enhance the efficiency of financial
payments systems as all operations are jointly kept by all members of the network and all the
processes of order-settlement-payment are implemented in real time. This compares with a current
situation where most settlement processes take 2 or 3 days to execute, creating operational and
counterparty risk. The benefits of FinTech applications in this field for financial stability may include:
(i) increased market efficiency, in particular for Real Time Gross Settlement (RTGS) among large
financial institutions, (ii) enhanced risk measurement of each bank and a more transparent financial
system, (iii) lower trade costs, robustness against cyber-attacks, and less need for collateral, (iv) a
stronger wealth-channel for monetary policy if more agents access financial assets and loans.
Similarly, crowdfunding and P2P reduce systemic risk since they do not involve money creation
through the conventional multiplier/maturity transformation mechanism of banks. While this may
significantly limit the scale at which operations can develop, they can be an affordable alternative
for businesses that are not covered by conventional financial institutions.
FinTech market support tools can also contribute to financial stability to the extent that they can
mobilize a larger volume of information to better assess credit risk and to mitigate it through smart
contracts, guarantees and collateral.
Risks
▪
New systems may have unknown weaknesses that are not apparent in
the trials-"flash crashes"
▪ Pressures for users of automated payments and transfers systems-
"smart contracts"
▪ Cryptocurrencies poses a number of challenges to financial systems
and central banks alike
▪
Perhaps the greatest risk of FinTech is that of cybersecurity
Risks
[SLIDE 14] FinTech developments also pose a number of risks for financial stability and monetary
policy. In the case of financial infrastructures new systems may have unknown weaknesses that are
not apparent in the trials, leading to financial disruption and critical episodes such as "flash crashes".
Retail payment systems may add credit risks during offline operations and transparency issues in
prepaid systems.
Users of payments and transfers systems may also be pressed to undertake unwanted credit
operations, while "smart contracts" that are automatically executed may enhance instability if the
system fails to check the solvency of each counterpart. Algorithm-based credit assessments may
generate biases in the access to financial products and replace know-your-client approaches,
increasing transactional costs and engendering volatility and herd behavior. Uninsured
deposittaking is an area of particular concern due to its exposure to fraud.
The emergence of cryptocurrencies poses a number of challenges to financial systems and central
banks alike. The main risks in the use of DLT-blockchain technology to support privately issued
currencies lie in the monitoring of money aggregates, the potentially damaging volatility of rates of
exchange, the broader risk of volatility under fixed or unexpected changes of supply, and the risk of
runs due to losses of confidence when such currencies coexist with legal tender and deposit-taking
banks.
Perhaps the greatest risk of FinTech is that of cybersecurity. The more financial systems depend on
electronic platforms and digital records, the more exposed they are to cyberattacks, which can
disrupt the flow of funds across the economy. Of course, this is not an exclusive risk of the more
innovative FinTech developments, but of any electronic-based financial system.
Potential for financial development
▪
DLT may contribute for the development of emerging countries in
aspects:
i.several Universal access to financial services by consumers and small-medium
enterprises
ii. Enhanced security of remittances and transactions among vulnerable sectors
iii. Higher competition and less concentration of the financial sector
Reduced costs for participation in the formal economy
v.iv. Easier access to public services based on improved government databases
Potential for financial development
[SLIDE 15] DLT may contribute for the development of emerging countries in several aspects: (i)
universal access to financial services by consumers and small-medium enterprises; (ii) enhanced
security of remittances and transactions among vulnerable sectors (the poor, migrants, rural areas);
(iii) higher competition and less concentration of the financial sector, and (iv) reduced costs for
participation in the formal economy and easier access to public services based on improved
government databases. Recent experiences with M-Pesa in Africa and with Unique ID in India are
good examples of such development trends.
However, some obstacles and risks still deserve attention. An efficient use of financial services may
require larger investments in education and financial literacy. Recent experience shows that even
in developed countries people often misuse financial instruments. Consumers often suffer from
large debt burdens and complex contracts that they do not understand. Also, some of the new
financial instruments-such as digital currencies-may facilitate tax evasion, fraud and illegal
transactions. Regulations of Anti Money Laundering (AML) and Know Your Customer (KYC) should
be enhanced to prevent such risks. Finally, use of digital services requires better telecommunication
infrastructure and internet access in some areas.
Central Bank Digital Currencies
Central Bank Digital Currencies (CBDC) represent an even more ambitious project that could be
developed with a Blockchain/DLT infrastructure. A CBDC could imply several advantages for its
users: (i) lower costs and higher speed for the interbank market; (ii) the possibility to implement
central bank open market operations in a calendar of 24h/7days and reduce the current overnight
transaction risk; (iii) an easier framework to pay interests on central bank currency and avoid
restrictions coming from a zero-lower-bound (ZLB), and (iv) separate the current joint roles of credit
and money creation by commercial banks, creating a more narrow banking system in which banks
and financial institutions work with a 100% equity and no leverage.
Allowing a massive access, the balance sheet of the central bank creates almost unsurmountable
challenges and risks, though. The main challenge is to move from a few dozens of wholesale partners
to thousands or even millions of retail account holders, many of which could massively join as a part
of a run on commercial banks. Speculators may observe relevant information about the weaknesses
of one particular financial institution or the system as a whole and exploit such information in
speculative attacks that target certain assets when the central bank or another institution may have
low reserves or liquidity problems.
CBDC seems to lead inevitably to the replacement of the classical role of central banks at the top of
a tiered liquidity system to that of a massive retailer, where deposit-taking may soon combine with
loan-making. For this reason, the experiments with RSCoin at the Bank of England and CAD-Coin at
the Bank of Canada take a very cautious approach, aiming at addressing technical issues before any
definite step in such direction. This means that a real CBDC may still be many years away.
Slide 16
Challenges and dilemmas for central banks and
financial regulators
▪
FinTech is not necessarily a threat to a central bank
▪ Smets (2016) | FinTech offers good opportunities to central banks coming from the
cost reduction implied by the DLT
▪ The ability to align FinTech developments with central bank objectives depends on
the regulations issued by central banks and financial authorities
Developments vs stability and trust
Inclusiveness vs risk of uninformed decisions
o
Decentralization, choice and competition vs. operational efficiency, economies
o
of scale and client knowledge
Personal credit assessment and privacy
o
Challenges and dilemmas for central banks and financial regulators
[SLIDE 16] FinTech is not necessarily a threat to a central bank, no matter how striking the contrast
between its sobriety and the exuberance of FinTech developers. The Governor of the National Bank
of Belgium Jan Smets,4 has argued that FinTech offers good opportunities to central banks coming
from the cost reduction implied by the "distributed ledgers" technology; in his opinion, the greatest
revolution of FinTech.
The ability to align FinTech developments with the objectives of inflation control and financial
stability depends to a large extent on the regulations issued by central banks and financial
4
Smets, J. (2016), "FinTech and Central Banks," speech delivered at the Conference "FinTech and the Future
of Retail Banking," Brussels, 9 December, 2016.
authorities themselves. As a result, the latter face an acute dilemma: how to articulate regulations
in a way that allows innovations to emerge and develop without compromising stability and trust?
According to the Governor of the Bank of England, Mark Carney, FinTech innovations should not be
in the "Far West," nor be choked at birth. In the same vein, Fed Governor Lael Brainard argues that
regulators and supervisors should not overburden financial innovations, as this could push them
outside the regulatory perimeter, thus creating more risks and less transparency.
But the dilemmas for economic authorities do not stop at this philosophical level. There are a
number of concrete dilemmas between valid policy goals.
▪
Inclusiveness vs risk of uninformed decisions. One of the main potential benefits of FinTech
innovations, particularly for emerging economies, is financial inclusion, as many more
people can have access to financial services. However, while this may be unambiguously
positive for the most basic financial products, such as payment systems, it may be not so if
people make uniformed credit or investment decisions. In order to address this issue, the
policy response should comprise financial education (which is a long-term solution) and a
proper financial consumer protection framework.
▪
Decentralization, choice and competition vs. operational efficiency, economies of scale and
client knowledge. Should FinTech innovations result in an unbundling of the core functions
of financial institutions, a large number of relatively small firms may have a large share of
the financial industry (decentralization). Having more firms would allow clients to be
provided with more choices of financial services and an overall increased competition.
However, scale is important in the financial sector, and having too many firms providing the
same service may not be efficient. In this sense, incumbents may have an edge over FinTech
innovations, as they also have because of the prior knowledge of their clients. Striking the
right balance between competition and efficiency is up the market to decide; but from a
regulator perspective ensuring a levelled playing field is important and how decentralization
unfolds, if at all, should be followed closely.
▪
Personal credit assessment and privacy. Financial information is very sensitive by its very
nature, and ownership or access to it may be controversial. It is true that having access to
that information could allow for a better and more targeted supply of financial products,
and having a record of sound financial behavior can improve credit scoring, which can bring
benefits for consumers. However, spreading that information raises concerns. Unrestricted
access for FinTech companies to financial information is not an appealing option, whereas a
full ban in practical terms may choke them. A middle ground can be to allow for some sort
of access and use of financial information by FinTech companies, with strict sanctions for
misuse or leakages.
FinTech in Chile
[SLIDES 17 and 18] According to the CCAF 2017 The Americas Alternative Finance Industry Report -
Hitting Stride, Chile is the country with the largest development in FinTech services. This is due to a
large extent to the fast development of crowdfunding platforms in Chile5, which appear to have
flourished from their connection to factoring services.
Slide 17
FinTech in Latin America: size
Volumes by Alternative Finance Model
(in million of dollars)
Total By country, 2016
114.2
400 120
342.1 97.8
350
100
300
80
64.4
250
60
200
40
150
110.6 12.6
20 11.2
9.9
100
56.1 0
50
Peru
Chile
Brazil
0
Mexico
Colombia
2014 2015 2016 Argentina
Source: Ziegler, T. et al. (2017), "Hitting Stride - The 2nd Americas Alternative Finance Industry Report," Cambridge Centre for Alternative Finance,
June 2017.
Slide 18
FinTech in Chile: