Following the examples of other central banks, we are also in the process of creating an innovation hub for closely monitoring of fintech developments, interacting with institutions that plan to launch new services, which will help them better understand the regulatory environment, but it will also help us adequately comprehend the fintech developments, assessing the risks and possibly recalibrating the regulatory framework. To sum up, innovation in digital finance, underpinning the nexus between digitalization and finance, offers wide-ranging opportunities, which authorities are keen to foster. It holds the promise of reducing costs and frictions, increasing efficiency and competition, narrowing information asymmetry, and broadening access to financial services – especially in low-income 3/4  BIS central bankers' speeches  countries and for underserved populations. Ongoing innovations and technological advances support broader economic development and inclusive growth, facilitate international payments and remittances, and simplify and strengthen regulatory compliance and supervisory processes. At the same time, authorities are concerned about potential risks posed to the financial system and to its customers. Moreover, the adoption process may also pose transition challenges, and policy vigilance will be needed to make economies resilient and inclusive, so as to capture the full benefits. In response, policymaking will need to be nimble, innovative, and cooperative and importantly will need to strike the right balance between enabling financial innovation on the one hand and addressing challenges to market and financial integrity, consumer protection, and financial stability on the other.

Rising importance of this topic is clearly demonstrated by the adoption of the Bali Fintech Agenda of the IMF that provides guidance for national authorities on how to cope with new and evolving financial landscape, and underlines the need for stronger international cooperation as financial services are blurring boundaries, both institutionally and geographically. In what follows, I would like to briefly focus on the challenges of fintech developments for the banking industry and policy makers. We do have to take into account that digitalization of banking is not a new phenomenon; it has been present for more than 3 decades (in the form of automated teller machines, electronic payments, e-banking). The emergence of fintech is only the latest wave of innovation to affect the banking industry. Still, in the last decade, a significant change has occurred in the way of using technology, thus creating environment in which disruption can happen more quickly, and urging traditional banks to adjust faster to maintain market share. Besides the advancement in technology, a few other factors have also contributed to proliferation of financial innovation. The fact that banking industry was dealing with the legacy issues of the global financial crisis-impaired balance sheets, perhaps was important factor that provided space for non-banks to penetrate in financial business. Also, banks’ resources to a great extent were tilted towards implementation of the new Basel 3 requirements aimed at increasing the resilience of the banking system.