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1 1 (November 23, 2016)

handle is hein.crs/govcewv0001 and id is 1 raw text is: '. ~**\**\ &~ ~ riE SE .$rCh &~ ~ ~ Financial Innovation: Fintech Recent advances in the capability and use of digital technology are affecting the way many financial services are delivered by companies and used by consumers. Innovations in financial technology-orfintech- potentially could increase the efficiency and availability of financial services, but may involve potential risks. Congress and regulators may face questions about how the benefits should be balanced against the risks. This In Focus gives a broad overview of the issues commonly involved with innovative financial technology. It does not cover specific innovations in detail, but instead provides a framework for evaluating any innovation. Overview. Fintech usually refers to technologies with the potential to alter the way certain financial services are performed. Table 1 provides a few examples. Some sources indicate that more than 4,000 fintech companies operated in the U.S. and the UK in 2015, and more than $24 billion had been invested in fintech companies since 2010. These numbers do not include internal investments made by incumbent financial institutions. Table I. Examples ofFintech Financial Product or Innovation Service Affected Marketplace Lending Commercial lending Crowdfunding Equity issuance Blockchain Ledgers Payment and settlement Robo-Advising Wealth management Algorithmic High-Speed Securities trading Trading RegTech Regulatory compliance Big Data Many services; cross- cutting Source: CRS. Notes: This is a non-exhaustive, illustrative list. Technology has continuously changed finance throughout history-from using cuneiform writing to record debts on clay tablets to using mobile phones to deposit checks. Some innovations create opportunity to improve social and economic outcomes; some create risks of undue or unexpected financial loss and instability; and many do both. Policy issues. Fintech generally does not offer wholly new products or services, but rather it changes the way traditional products and services are delivered. These existing products and services are subject to a variety of federal and state laws and regulations. A possible issue for policymakers when evaluating a particular emerging Updated November 23, 2016 financial technology is whether the existing legal and regulatory framework appropriately facilitates the realization of potential benefits while adequately protecting society from the risks. While the technologies in question may be numerous and varied, there are common areas of analysis that can help address relevant policy concerns. Technology has improved the production of goods and services in virtually every industry, including finance. Fintech may be able to improve or replace the way certain financial services are provided, potentially resulting in more efficiency and increased customer and small business access. Efficiency. Fintech supporters assert that the traditional processes used to provide certain financial services are encumbered by legacy systems and have become outdated. Automation can replace employees, and digital, wireless technology can replace physical systems and infrastructure. Algorithmic analysis of big data may be better able to allocate capital across the financial system than traditional human assessments. Eliminating inefficiencies can reduce the prices and increase the availability of financial services. Access. Fintech's potential ability to increase efficiency may also increase consumer and small business access to financial products and services. Reduced costs are likely to reduce prices, and some customers that previously found services too expensive could enter the market. Some that previously did not have access to funding-due to misinformation or lack of information about the risk of losses-could potentially secure funding. Also, as financial services are increasingly delivered online and wirelessly, fintech may allow businesses to reach new customers that were previously restricted by geographic remoteness or unfamiliarity with products and services. Increased accessibility may be especially beneficial to traditionally underserved groups, such as low-income, minority, and rural populations. Risk taking is inherent in finance, and not a problem per se. However, losses can be problematic when parties do not understand the nature and magnitude of risks they assumed, as unexpected losses can inflict undue harm on individuals, companies, and the financial system. Innovation, by definition, is relatively new and untested, and so certain observers are concerned that it increases the risk of these negative outcomes. Unexpected losses. When an innovation has only a brief history of significant involvement in the financial system, it can be hard to predict outcomes. Certain technologies may not in the end allocate funds, assess risks, or otherwise .O 'T p\w gnom ggmm mppm qq\ a , q 's I 11LIANJILiN,

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