By Andrew A. Turner, J.D.
Developing technological infrastructure, such as faster payment systems, along with the potential for more transparent and simpler product offerings provide building blocks that may “be combined in ways that move the needle on financial inclusion,” according to Federal Reserve Board Governor Lael Brainard. She spoke at a conference, “FinTech, Financial Inclusion—and the Potential to Transform Financial Services,” hosted by the Federal Reserve Bank of Boston with the Aspen Institute.
While new technologies are lowering transaction costs by automating the customer interface and underwriting processes, it remains unclear “how much of this fintech lending is making a significant dent in financial inclusion, as opposed to serving prime and near-prime consumers in the United States,” Brainard observed. Account access and credit are unlikely to provide a complete solution as continued progress on financial inclusion is likely to require solutions that address the needs of underserved households and small businesses, in her view. In particular, families' financial resilience in the face of unpredictability in income and expenses, is a critical concern that needs to be considered.
“New platforms like faster payment systems have the potential to combine with other technological improvements, like cheap access to cloud computing and an open-source approach to artificial intelligence, to create more full-stack approaches to financial inclusion,” Brainard argued. Financial innovation, noted by the Fed Governor, includes machine-learning tools and data aggregation to offer credit to consumers lacking traditional credit histories, apps using faster payments and cheap accounts, and products using behavioral economics-based “nudges” to help consumers grow their savings.
However, Brainard cautioned that many of these products create consumer data security and privacy issues to resolve, which could have implications for pricing of services. Another challenge is reaching communities that lack infrastructure for digital service delivery. Access to technology, she contended, is “increasingly essential to households and small businesses in underserved low- and
The challenge as regulators, she concluded, “is to ensure trust in financial products and services by maintaining the focus on consumer protection, while supporting responsible innovation that provides social benefits.”
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