Mark Carney on Fintech: "We won't discourage avatars by preserving dinosaurs"

By Madhvi Mavadiya | 19 June 2016

England’s central bank has launched an accelerator with the aim of harnessing fintech innovation in order to solve problems that the institution faces. After applications have been reviewed and assessments have been completed, the Bank of England will act as a reference clients for other firms and a network will be established for the benefit for all in the industry.

This news was meant to be announced by Mark Carney, Bank of England governor, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London last week, but after the tragic death of Jo Cox MP, Carney paid respects to the MP instead.

The accelerator has already carried out initial work in the areas of data anonymisation, cyber security and distributed ledger technology. Other areas of potential future interest for the accelerator include finding new ways to structure and analyse large datasets, machine learning, particularly in relation to anomaly detection and pattern recognition, and protection of the Bank’s sensitive data,” the announcement read.

Carney made a “promise of fintech” and invited “the wave of innovation sweeping through the world of financial technology [that] promises nothing short of revolution”. “Fintech heralds the dawn of narrow banking and portfolio optimisation. It will change the nature of money, shake the foundations of central banking and deliver nothing less than a democratic revolution for all who use financial services,” Carney said.

The governor spoke of the impact of the globalisation and the innovation of replacing memory with money. “The emergence of mobile telephony, the ubiquity of the internet, availability of high-speed computing, advances in cryptography, and innovations in machine learning could combine to enable rapid changes in finance - just as they have in other areas of the economy.”

With financial exclusion still a very real problem, fintech has allowed those who do not have bank accounts to manage their money effectively. To use mobile transfer application M-Pesa as an example, its successes has led to traditional banks perceiving the application as a competitor. James Mwangi, CEO of M-Pesa said to the BBC that for many Kenyans a mattress is their bank account.

The biggest problem with accessing a bank is not bank charges, it is the cost of access. I will have to go 70km to where the bank is; I will have to pay public transport; I will have to spend the whole day to get to the bank; I have to dress because I have to go to the biggest shopping centre in my district; that is what will be removed,” Mwangi said.

Carney advocated a similar system in his speech and said that he intends to widen central bank money to non-bank Payments Service Providers (PSPs). “As the internet revolutionised commerce, making trade faster and markets more competitive, payments technology lagged in many countries, although it is worth remembering that the UK has been a global leader on real-time retail payments.

Faster Payments (FPS) was one of the earliest real-time retail systems introduced, in 2008. Now, new entrants and established players are seeking to provide payment services that are instantaneous, secure, reliable and accessible anytime from anywhere.” In this day and age, payments should be completed in seconds, not hours or days.

The Bank of England will also explore the uses of distributed ledger technology, which is something that the UK government also pledged at the start of the year. Carney asked: “if distributed ledger technology could provide a more efficient way for private sector firms to deliver payments and settle securities, why not apply it to the core of the payments system itself?

This is further evidence of the UK’s encouragement of the financial industry to embrace technology. Earlier this year, UK regulator, the Financial Conduct Authority (FCA), also launched a sandbox, or a ‘safe place’ for fintech companies, where services and products can be tested before being offered to the consumer. Being the first regulator to roll out a programme such as this, Director of Strategy and Competition at the FCA, Christopher Woolard, highlighted that with many dated rules, this provides a route to market for startups without a transfer of risk.

Alongside this, the bank desires to calibrate its regulatory approach to fintech developments, but monitor them in the same way that other firms are. “We are building a system that allows for orderly failures. Not just to end the blatant unfairness of Too Big to Fail, but also to foster industry dynamism and better outcomes for consumers. After all, ease of exit promotes ease of entry.

We won’t  discourage avatars by preserving dinosaurs.

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