A framework for understanding fintech and its value

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This paper was produced under the Funding Australia’s Future project which aims to better understand the changing dynamics of the financial system and its impact on future economic growth. The research from Stage Four explores the growth of fintech, its implications on the structure of the financial sector and the value it can produce for the broader Australian community through increased competition in the financial services sector.

 

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Although Fintech has significant value – both private and social – to deliver to Australians, its potential is often misunderstood and mischaracterised because the ‘context’ of fintech is not well defined or understood. Additionally, the potential private benefits from fintech might differ importantly from the social value of any innovation.
This paper defines fintech as an innovation enabled by one or more technological ‘triggers’ that have potential to provide value through enablement or disruption in the financial services industry. It proposes a framework to understand fintech in terms of customer type, industry subsector and enabling technology.
It argues there is significant commercial and social value to be gained from fintech – with the largest social benefits to be derived from improved efficiencies. Policymakers and regulators should act to ensure the social value is maximised, while managing the associated costs such as financial stability.

 


The Australian Centre for Financial Studies (ACFS) initiated the Funding Australia’s Future project in late 2012 to undertake a stocktake of the Australian financial system, and its role and challenges in facilitating future economic growth within the wider economy.

In an economy which has enjoyed 26 years of consecutive economic growth and showed a resilience through the Global Financial Crisis which was the envy of many nations, the financial sector has played an important role. The past decade, however, has been one of significant change. The growth of the superannuation sector, the impact of the GFC, and the subsequent wave of global re-regulation have had a profound effect on patterns of financing, financial sector structure, and attitudes towards financial sector regulation. Identifying the extent to which these changes are transitory or likely to be more permanent is crucial to understanding how financing patterns and the financial sector will develop over the next decade or so.

The Funding Australia’s Future project is in four stages, the fourth of which explores the growth of fintech, its implications on the structure of the financial sector and the value it can produce for the broader Australian community through increased competition in the financial services sector.