Building digital infrastructure for the future of finance

There is general consensus that America’s roads, bridges, ports, and powerlines need an upgrade. It’s also true that digital financial technologies, or “fintech,” are increasingly forming the backbone of our financial infrastructure and replacing inefficient, often manual processes with modern rails built upon automation, data analytics, and consumer-centric benefits, including access, speed and customization.

When it comes to financial health, it is critical that policymakers look to forward-leaning policies that safeguard consumers and unlock greater financial inclusivity, choice and opportunity. To fully realize the benefits of a modern financial system, policymakers must anchor policy to three key pillars: recognizing the impact of fintech on financial inclusion; modernizing financial regulatory frameworks; and fostering technology adoption. This is critical given the rise of global fintech competition and to ensure that the future of financial services is underpinned by American norms, values and the rule of law.

Fintech innovation is not hype and marketing — it is real impact for real people.

It is an individual receiving her paycheck quickly, avoiding overdraft fees. It is a small business accessing needed and fair capital or even a PPP loan. It is a consumer being empowered to reduce high-cost debt, balance budgets and drive financial stability. It is a foreign worker sending money home with transparent and low-cost options. It is a young investor accessing education and investment opportunities previously only available to a select few. And it is previously disadvantaged borrowers securing access to fair and transparent credit due to smarter underwriting approaches. 

Recent data underscores this importance. A global consumer survey shows fintech adoption rates at 64 percent; another survey finds that 69 percent of Americans say that fintech was a lifeline during the COVID-19 pandemic, with 57 percent noting fintech saved them time, 42 percent saved money, and 37 percent noted a reduction in stress or fear of managing their money. A researcher from the Federal Reserve Bank of Atlanta finds that fintech platforms can have lower operating costs than storefront lenders and another study notes that younger consumers are more willing to secure credit or use payments services from a fintech company than older consumers. 

Second, given the benefits of fintech innovation and the reality of digitization, it is imperative that regulatory approaches and frameworks evolve to recognize and safely incorporate new models. Regulation cannot remain entrenched in the status quo, as it undermines consumer and economic interests and cedes our financial future to countries actively fostering technology-driven innovation. 

Through streamlined and rationalized state and federal licensing, and access to existing chartering options, newcomers and incumbents can innovate within a clear and safe framework, promoting modernization. Regulators have the knowledge and tools to mitigate identifiable risks ensuring that regulations benefit and protect consumers. This is not deregulation. Bringing fintech entities into the regulatory perimeter will ensure more holistic oversight, drive consumer-centric competition and create a sound competitive foundation for American fintech companies.

Finally, policymakers must provide further regulatory clarity to ensure the adoption of emerging technologies and beneficial partnerships between fintechs and financial institutions, frequently including community banks. A survey of global senior decision makers across financial services found that “clear regulatory and legal frameworks” are a key driver in enabling innovation in the next three years, ahead of access to capital or low barriers of entry. 

Through clear guidance, support for innovative models centered around data mobility, or recognition of fintech partnership and vendor models, policymakers can ensure that promising fintech solutions will be integrated responsibly into our financial system.       

We’re at an exciting inflection point related to fintech policy. Open and collaborative processes that focus on fairness, inclusion and transparency will lead to frameworks prioritizing the interests of consumers and the broader economy. Fear of change is not a strategy that wins the future – rather confident recognition of its inevitability and prudent assessment of its benefits and challenges is. By understanding where the world is and where it is heading, the U.S. can confidently build digital roads into the future of finance.

Daniel Gorfine is a senior policy advisor at the Financial Technology Association (FTA), adjunct professor at the Georgetown University Law Center, and was previously the Chief Innovation Officer at the U.S. Commodity Futures Trading Commission.