Last year saw new technologies and innovations taking the mainstream stage globally. Just remember what was on TV, social media or set the topic of your small talk at the office – the rise of technology served as the main headline and outcome of 2017. Its impact on society and the way we interact with each other is exceptional, and what’s more important – tangible. The Fourth Industrial Revolution is disrupting almost every industry in every country, and its propagation has no historical precedent.
The entire areas of life are subject to change, and this transformation will be unlike anything we have witnessed before. “Technology has a critical role to play in addressing each of the major challenges the world faces, yet it also poses significant economic and social risks. It is vital that we develop shared norms and protocols to ensure that technology serves humanity and contributes to a prosperous and sustainable future,” said Jeremy Jurgens, Chief Information and Interaction Officer, Member of the Executive Committee of World Economic Forum. In banking sphere, these changes lie within fintech – the use of technology to deliver financial services and products to consumers. Fintech could be applied in various areas of banking, from insurance and investing to basically anything relating to finance.
Despite being traditional in the good sense of the word – the foundation of banking has insignificantly changed over the centuries – bank institutions were among the first ones to explore new opportunities. In May 2017, China’s central bank has established a fintech committee to analyze the influence of technology on monetary policy, financial markets, stability, payment and clearing mechanisms. The PBoC (People’s Bank of China) statement says technologies have “injected new vitality“, but also “brought new challenges” for the banking sector. This statement is crucial as it contains the main question for this part: are these challenges worth the trouble?
Many professionals in the industry, despite being restrained in comments, have little doubt about it. They believe that technological innovations in financial services could result in the creation of new business models and applications. According to data released by CB Insights, venture capital investment in financial technology companies grew 38% worldwide in Q2 of 2017 from the same period last year.
The main question here is how will central banking evolve over the next several years to come. As Singapore central bank chief Ravi Menon commented on Bloomberg: “Financial technology is going to be the future of financial services. You just have to be discerning — not to be too wide-eyed about it, but at the same time, not to be cynical about all new technologies. We should experiment with an open mind.” The following chart illustrates some of the most relevant responsibilities of central banks that may be more exposed to changes brought by fintech.