FEW will argue against using digital payment systems to improve access to financial services for the 1.7 billion unbanked people in the world, but there are risks that regulators will need to check before allowing such innovation is launched on a massive scale. This was the submission of Mark Carney, Governor of the Bank of England (BoE) at a seminar on Big Tech and the Future of Finance at the ongoing annual meetings of the IMF/World Bank here in Washington D.C. United States of America.
Most central banks, he notes, are behind the digital financial innovation curve and as such, would need to step up their game to mitigate risks that may lurk in such good ideas. “New innovations in digital financial services are in positive themselves. However, good ideas can create unintended problems in other areas,” he says.
The BoE Governor cautioned against stifling innovation, but instead advised central banks to put in place regulatory guiding principles. It is still far too expensive, he says, for people to send money across borders and even domestically. For efficiency sake, Fintechs and digital payment systems can be of help.
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India is a global leader in digital payment system, according to Nandan Nilekani, co-founder and chairman of Infosys Technologies, thanks to development of an inter-operable, open access digital payment architecture that covers 100 percent of the population. Digital payment, he adds, requires a smart phone to store data, however, the Indian model made provision for those without smartphones and even those without phones. Several countries are already looking to emulate the model, he claims.
A key worry over big tech’s inroad into digital payment system is the need to keep them from building dominant platforms and becoming monopolies, according to Jason Furman, Professor of Economics at Harvard University.
“The Ethos of ‘break things and repair them later’ doesn’t work for the global financial system,” he says.
David Marcus, Facebook’s head of Calibra, its yet-to-be-launched digital wallet, says its firm is sampling regulatory concerns before it launches next year.