Study Overview
In this paper, we explore how technologies from new players in fintech differ from traditional financial services in the problems they solve, requirements for success at-scale, and unintended consequences. We highlight key questions from the academic literature that have already been addressed and those that are outstanding. While we focus on applications for consumers in developing countries, we also draw on insights from examples in developed economies that may serve as both potential areas of opportunity and pitfalls to avoid.
Study Results
First, we discuss how new players aim to increase access to financial services for those outside of the traditional banking systems, build new technologies and infrastructure to lower costs, and even create new markets to solve problems not addressed with traditional financial services. With large dispersion in the sources of innovation, each of these new players is approaching these problems in unique ways. To have any real impact on consumers, these fintech technologies must be brought to scale. While the large number of new players has been critical for innovation, it has made the challenge of scalability that much harder. Not only does the number of players increase direct competition between fintech solutions, but the fragmented nature of the market makes it difficult to establish trust, proper regulatory oversight, and the necessary infrastructure. While these technologies have a lot of potential benefit for consumers, they are not without consequences. Increased financial access has clear benefits, but it poses a challenge when bringing in less technically or financially sophisticated consumers. As access is expanded, consumers should be empowered to make informed decisions and avoid security risks. Removing frictions in financial markets can improve efficiency, but it also allows consumers to act more impulsively. We also discuss how new markets can lead to novel behaviors or a resurfacing of traditional challenges in finance, highlighting the need for careful research on the implications of these new players. Beyond the direct benefits and consequences for consumers, fintech can have broader impacts on markets, prices, intra-household dynamics, mobility, and even the environment. The paper concludes with a discussion of these broader impacts.
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)