Based on 96 country responses to the 2019 IMF-World Bank global fintech survey (GFS), the IMF has released results of regional country fintech experiences. The paper found that while there are important regional and national differences, countries were broadly embracing the opportunities of fintech to boost economic growth and inclusion, while balancing risks to stability and integrity.
The report highlighted that the Africa sub-Saharan region has become a leader in mobile money resulting in a radical change in the delivery of financial services and significant gains in financial inclusion. However, initial differences in regulatory approaches to new mobile money services offered by mobile network operators led to noticeable regional differences, which have narrowed over time.
East Africa has maintained an overall lead including in attracting fintech investments. Southern and Central Africa have seen increases in delivery of financial services through digital channels, but there is significant room for further gains. Despite their varied starting points, priorities, and capabilities, countries in West Africa are ready to take advantage of digital technologies.
Regulatory responses in many countries have been more reactive to the rapid pace of change in the sector and much work remains to be done with regards to adjusting their legislation, as needed, to facilitate orderly digital payments and to adjust to the new challenges coming with digital finance including for competition, AML/CFT, cybersecurity, consumer protection and data privacy issues.
According to the survey, Asia has made significant advances in nearly every aspect of fintech, although there is heterogeneity within the region. Fintech use has expanded beyond payments to include lending, insurance, and investment; adopting a wide range of technologies based on consumer needs, level of development, regulatory stance, and existing financial and technological infrastructure.
Asian tech giants (e.g., in Bangladesh, China, Indonesia) have become important providers of financial services, putting competitive pressures on traditional financial institutions. Policymakers are trying to catch up with the rapid pace of fintech development, while ensuring that fintech risks are well understood and mitigated. Some fintech products have raised significant consumer and investment protection issues, as well as financial stability and integrity concerns (particularly in crypto-assets and P2P lending).
Regulators are using mechanisms such as fintech units and regulatory sandboxes, and some regulators have been testing RegTech/SupTech applications (e.g., Malaysia and the Philippines). Some countries have issued regulations on digital lending (e.g., Indonesia, Malaysia, the Philippines, Singapore, and Thailand) and equity crowdfunding (e.g., Malaysia, Singapore, and Thailand). Similarly, the government of India via India Stack and the Jan Dhan-Aadhaar-Mobile Trinity, is supporting the digitisation of payments, amending KYC requirements, and customers digital onboarding, and enabling automated access to data from various digitised government systems in the country.
The fintech market in Europe is growing but is unevenly distributed, with non-EU countries trailing European Union peers in fintech adoption. European authorities (such as France, Lithuania, Luxemburg, Malta, Switzerland, and the United Kingdom) have been proactively encouraging fintech innovation and exploring regulatory responses.
The European Union has introduced two key regulations in the form of the General Data Privacy Regulation (GDPR) and the Payments Services Directive 2 (PSD2), both of which came into effect in 2018. The full implications of these significant policy developments will take some time to become clear. Nonetheless, Europe is already among the most financially-developed and inclusive regions in the world. Therefore, unlike some other regions, fintech would mainly affect the intensive margin of financial services provision.
While lagging somewhat in investment in Fintech startups, existing financial institutions are actively adopting new financial technologies, as manifested, for example, in the fact that Europe is the leading region for digital payments.
MENAP and CCA
The MENAP and CCA regions had a slow start in adopting fintech and activities are
concentrated in few countries and sectors, although the industry is now growing rapidly. In
MENAP, four countries (Egypt, Jordan, Lebanon, and UAE) account for 75 percent of fintech startups and, in the CCA, fintech activities are still concentrated in Kazakhstan. Innovations have mostly focused on payments and to some degree lending. Nonetheless, driven by broad recognition that fintech presents important opportunities to deepen financial institutions and promote financial inclusion, the industry is now growing rapidly, and new growth centers have emerged in Bahrain, Iran, and Saudi Arabia.
The growth of fintech in the two regions reflects government support and market dynamics but has been modest, including in addressing gender and income-based gaps. Policy priorities include addressing the gaps in digital infrastructures, prudential regulations (mobile money, cryptocurrencies, outsourcing), consumer protection, cybersecurity, supervision including cross-sector and cross-border collaboration as well as AML/CFT.
Latin America and the Caribbean
In LAC region, fintech startups are growing, albeit from a low base and still behind Canada and the United States. Adoption of mobile money services in LAC countries remains low, despite relatively high mobile and internet penetration rates. In terms of alternative financing, the United States accounts for 97 percent of the Western Hemisphere market. Most of the alternative financing in LAC is done through lending activities, rather than crowdfunding, and benefits equally consumers and businesses.
To foster financial development and reduce transaction costs of cash, several central banks (e.g., Bahamas, the ECCU, and Uruguay) are exploring the possibility of issuing Central Bank Digital Currency (CBDC).
The regulatory response varies widely across the region, depending on the size and structure of their respective financial and fintech markets, and the flexibility of the existing regulatory and legal frameworks. For example, while Mexico introduced new and comprehensive fintech-specific legislation, Brazil integrated fintech issues into the existing regulatory and legal framework. In Canada, the new oversight framework will seek to introduce measures associated with end-user funds safeguarding in the event of insolvency, operational standards, disclosures, dispute resolution, liability, registration, and personal information protection.