In June 2016, Cabinet Secretaries and senior officials from across the Administration discussed the potential of fintech to serve multiple political goals including small business access to capital, financial inclusion and health, domestic growth, and international development. The discussion too place at the White House FinTech Summit. Industry and other stakeholders also focused on the necessity for a framework that articulates the U.S. government’s perspective on fintech at the event.
Today, the Administration of the White House presents A Framework for FinTech, a summary that expresses the forward-leaning attitude of the Administration to innovation and entrepreneurship, generally, and fintech in particular.
To foster positive financial services innovation and entrepreneurship
The Administration has allocated significant funds to promote innovation and entrepreneurship as a base for economic prosperity at home and abroad.
At the 2016 Global Entrepreneurship Summit, President Obama described the entrepreneurial spirit as “that ability to turn an idea into reality – a new venture, a small business – that creates good – paying jobs, that puts rising economies on the path to prosperity, and empowers people to come together and tackle our most pressing global problems, from climate change to poverty.”
Significant efforts have been undertaken by federal agencies to support
innovation and engage with the fintech industry. However, there is still much work ahead. Policymakers and regulators should work together with the private sector both to promote innovation in fintech and protect consumers, businesses, and the financial system.
To promote safe, affordable, and fair access to capital
Having secure access to capital, individuals and businesses can better control their financial affairs, which supports economic growth. However, providing such an access is still a challenge.
“The difference between responsible capital sought and capital extended can prevent important investments that could contribute significantly to economic opportunity, financial security, and growth. Small business access to capital is a prime example. Despite serving as a critical part of the U.S. economy, small businesses generally have limited access to capital and other vital resources that help entrepreneurs grow their businesses. Recent research suggests that more than 70% of small businesses seek loans of less than $250,000, but banks, despite increased small business lending since the financial crisis, remain hesitant to lend this credit”, says the paper.
Here, the fintech can play an important role in serving creditworthy borrowers and businesses in need of capital. The Administration underlines the potential of innovative platforms to provide access to capital while also to ensure adequate protection. According to the whitepaper Opportunities and Challenges in Online Marketplace Lending published by Treasury in 2016, marketplace lenders can expand access to capital. The whitepaper contains also six recommendations to public and private sector participants for providing such access safely.
To strengthen financial inclusion & health in the United States and abroad
The process of transferring money across borders can be rather costly and complicated. Rather, financial inclusion and national security objectives are mutually reinforcing, as both require including more people in the regulated financial sector, while preventing illicit activity.
Technology can provide an easier access of people to the financial system and better control of their funds. However, improved access is not enough. Consumers also need tools to help manage their finances and improve their financial health. This includes the profound knowledge of how to store and transact safely, pay off student debt or manage other expenses, prepare to purchase a home, save for retirement, or manage cash flow as well as many other aspects.
The financial services sector, including fintech, has a vital role to play in increasing financial inclusion and health.
To address financial stability risks
The innovations in the fintech can increase transparency and reduce costs. The use of new and untested technologies is always risky. If left unmanaged, these risks could pose harm to the wider financial system. The example of the financial crisis demonstrates that systemic financial risks may arise in unexpected ways.
Policymakers, regulators, and industry should unite their efforts to identify and fight potential systemic risks as the industry grows. The post-crisis environment and the pace of innovation have provided a unique opportunity for the use of new tools and created a new spirit of cross-sector collaboration to serve this objective.
The Framework for FinTech contains the list of principles that can help the fintech ecosystem to contribute to a well-functioning and inclusive financial system and to the economy as a whole.
The ten principles encourage stakeholders to:
- think broadly about the financial ecosystem;
- start with the consumer in mind;
- promote safe financial inclusion and financial health;
- recognize and overcome potential technological bias;
- maximize transparency;
- strive for interoperability and harmonize technical standards;
- build in cybersecurity, data security, and privacy protections from the start;
- increase efficiency and effectiveness in financial infrastructure;
- protect financial stability; and
- continue and strengthen cross-sector engagement.
There is still much work ahead. It is necessary for the United States to continue developing a policy strategy taking into account the fintech advancement, the achievement of policy objectives where financial services play an integral role, maintenance of a robust competitive advantage in the technology and financial services sectors, and promotion of broad-based economic growth at home and abroad.