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Foreword

The monumental challenges we face today, from COVID-19 to the war in Ukraine, have reminded us that throughout history, turbulent times are often accompanied by innovation.

The technology-enabled innovation in financial services ¡ªknown as fintech¡ªis one such example, accelerating rapidly as pandemic shutdowns amplified its importance for maintaining business activity and financial services during a time of social distancing.

Every day, headlines attest to the seismic shifts that fintech is bringing to the financial services industry, driven by a dramatic expansion of internet access and smart phone usage, combined with lower-cost computing and data storage. As financial products, payments, business models evolve¡ªeven the concept of money itself¡ªso too are market players and the structure of the markets in which they compete. Large telecom and information technology companies, retail chains, along with small start-up companies, are joining traditional banks and non-financial institutions in providing services.

Digital financial services can play a significant role in maintaining active credit markets to support a resilient and inclusive recovery, leveraging data, analytics, and new business models such as embedded finance. It can also create new opportunities to make the global financial system more efficient and inclusive by overcoming geographic and physical obstacles to services, and by making information more widely available to consumers and providers.

Policymakers globally have embraced fintech development to promote innovation and growth of the digital economy. But for regulators and supervisors, digital transformation has also created challenges to balance innovations with safeguarding competition, financial stability and integrity, consumer protection and data privacy.

To help inform policy makers in navigating a complex financial system, this report explores the digital transformation underway in financial services and the implications of fintech on market outcomes, as well as regulation and supervision. It looks at the range of new market providers, business models, and products which have amplified the need for updated legal, regulatory and supervisory frameworks.

This work builds on the World Bank Group¡¯s efforts to support financial innovation at all levels. ľ¹ÏÓ°Ôº has been supporting governments adapt regulatory frameworks, modernize systems and other financial infrastructure, and ensure high standards of consumer protection. The IFC has been investing in a diverse group of private-sector fintech providers for over a decade, promoting the growth of responsible inclusive finance providers that serve tens of millions of customers across global emerging markets.

ľ¹ÏÓ°Ôº Group and the IMF launched the Bali fintech agenda (BFA) in 2018, recognizing the need for regulators and policy makers to actively engage as technology transforms finance, to take advantage of new efficiencies and opportunities to broaden financial access and achieve financial inclusion, while safeguarding financial stability and consumer protection.

As efforts continue to recover losses from ongoing crises, expanding access to financial services is one way to support businesses and communities get back on track. For poor people and micro enterprises, the use of basic services such as transaction accounts enables them to send and receive payments securely and gain access to savings, credit and insurance products that can help them plan for hard times, invest in their futures and grow their businesses.

We hope that this report will be a useful guide for policymakers around the world as they seek to manage longstanding risks and maximize the economic and social benefits of financial innovation.