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Helping the ‘unbanked’

Enabling inclusive fintech through regulatory innovation is the subject of a new report co-produced by the Cambridge Centre for Alternative Finance at Cambridge Judge Business School.

Helping the unbanked

Fintech can help extend the benefits of financial inclusion to millions of unbanked and underbanked people around the world, but may require corresponding innovation by the regulator to realise its full potential, says a new report produced by the Cambridge Centre for Alternative Finance (CCAF) and the FinTech Working Group of the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA).

“Fintech” – or technology-enabled financial services – are becoming increasingly sophisticated as they evolve and scale around the world. Fintech is an area that is very promising for financial inclusion – but it’s also a substantial challenge for regulators. This is particularly true in emerging and developing economies, where resources may be limited.

Over the past three years, regulators in advanced, emerging, and developing economies have been working to better understand and support fintech. These initiatives include innovation offices, regulatory sandboxes, and regtech. Global interest is strong, with regulatory sandboxes now live or planned in over 50 jurisdictions. There are also innovation offices in operation in over 30 jurisdictions, while 20 jurisdictions are pioneering regtech models.

These initiatives are the focus of a report by the CCAF at the University of Cambridge Judge Business School and the FinTech Working Group of Her Majesty Queen Máxima of the Netherlands in her role as the UNSGSA. The report, entitled “Early Lessons on Regulatory Innovations to Enable Inclusive FinTech”, was also supported by the Monetary Authority of Singapore.

The team of researchers interviewed over 40 regulators from more than 20 jurisdictions to inform empirical evidence on how regulators themselves are innovating to better respond to financial innovation. This has informed a number of lessons learned from early examples of regulatory innovation, together with practical considerations for those regulators who are seeking to implement them.

Innovation offices can improve understanding of fintech and support appropriate regulatory responses through early and close engagement with innovators. Regulatory sandboxes that test financial services and business models with customers can help regulators gain a better understanding of fintech, but the report says similar results may be more affordably achieved through innovation offices and other tools.

Bryan Zhang
Bryan Zhang

Bryan Zhang, Executive Director of the Cambridge Centre for Alternative Finance (CCAF), said the report captures regulatory responses to fintech that are in the early days of their development.

“The data is still limited at this stage, but the report points out that there is not a single ‘silver bullet’ for effective regulation of this sector, so more observation and experimentation will be needed,” he says. “Many regulatory techniques in this area are resource-intensive, so a cost-benefit analysis will be needed. But this report is an important early snapshot of both financial inclusion through fintech and steps to regulate this important sector.”

Philip Rowan, Regulatory Innovation Lead at the CCAF, highlighted that regulators in developing and emerging economies can learn much from others who have gone before them.

Philip Rowan
Philip Rowan

“With over 100 innovative regulatory initiatives now in place around the world, regulators considering their own approaches to fintech will benefit greatly from seizing the lessons learned from other jurisdictions. One of the biggest takeaways we’ve seen is the importance of an internal mindset and culture which is supportive of innovation within the regulator,” he says. “Direct engagement between regulators and innovators has also proven to be mutually beneficial, regardless of the form which this takes, through promoting understanding and reducing uncertainty.”

The UNSGSA FinTech Working Group is made up of members from Alliance for Financial Inclusion, Ant Financial, Bankable Frontier Association, Bill & Melinda Gates Foundation, Bangko Sentral ng Pilipinas, Better Than Cash Alliance, Consultative Group to Assist the Poor, International Finance Corporation, MAS, McKinsey, Omidyar Network, PayPal, Reserve Bank of India, and the World Bank.