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COMMENT: Fintech — Can there be too much of a good thing?

One of the greatest promises of fintech is financial inclusion. But can there be too much of a good thing?

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Fintech icon and internet of things with matrix code background

(PHOTO: Getty Creative)

By Lily Fang

SINGAPORE — One of the greatest promises of fintech is to enable more people to have access to a broader set of financial services with increasing convenience at lower costs. In short – Financial inclusion. Indeed, this is the general promise of innovation: improving people’s lives.

Innovation has generally delivered on this promise. One inspiring story is M-pesa, a Kenyan mobile payment app that allowed people to deposit, receive, and transfer funds all through the mobile app, without a bank account.

Other stories include innovations in insurance. Tech-driven micro-insurance providers can automatically pay out to poor farmers simply based on satellite data of weather conditions, skipping the lengthy and expensive process of claims filing, verification, and processing. And there are many more.

But can there be too much of a good thing? The answer is yes.

Take, for example, Robinhood. The trading platform that enabled – and enticed – millions of retail investors into the stock market by the promise of zero-commission trades, simple, seamless mobile interface, and a gamified trading experience.

Robinhood put a downward price pressure on traditional brokerages, many of which followed suit and offer zero-commission trades. Disruptive? Yes. But unequivocally good? Hardly.

The GameStop saga that unfolded in early 2021 exposed the danger of a gamified experience among millions of unsophisticated yet raucous retail traders, and it shone a light on a question that previously would only interest a few academics working in the arcane field of “market micro-structure”: Why is Robinhood able to offer zero-commission trade? Is Robinhoold altruistically subsidising trades?

The answer is no: Robinhood’s profit model is not based on trading commissions, but “payment for order flow”, an arrangement by which Robinhood receives hundreds of millions of dollars by selling retail investors’ order flows to entities such as high frequency traders, which profit from trading against such order flows.

As another example, consider PayPal’s introduction of a service that allow anyone with a PayPal Cash account to buy and sell cryptocurrencies. On its own website, PayPal dubs this “Crypto for the people”. The service offers a lot of convenience: you don’t need to worry setting up a separate crypto trading account, storing your crypto keys, cold storage, etc. Far less obvious to the novice trader is that PayPal’s service comes with quite a hefty commission: 3% to start. But more important, the simplification and gamification of the whole experience make retail investors overlook how risky crypto really are, or even the need to understand what crypto are.

Finally, take the examples of red-hot payment fintechs such as Affirm, AfterPay, which, by allowing shoppers to “buy now pay later” are believed to be disrupting the traditional credit card model. While shaking up the Visa MasterCard duopoly is welcome, the easier it is to “buy now pay later” the more risk there is that consumers would end up over-buying. At the end of the day, there is still consumer financing involved in “buy now pay later”.

Comparing these examples, one can conclude that in under-developed markets, the benefits of fintech is often clear. But in highly developed markets where consumers are already well-served, the case is often less clear. There is a particular danger associated with the simplification and gamification of financial transactions that could bring more harm than good to both the consumers and the financial system.

Think about what led us to the 2008 financial crisis. At the end of the day, it was cheap loans and lack of underwriting standards. Everything moved too quickly. By making everything so simple and accessible, we are inevitably throwing away some necessary checks and balances, even in people’s thinking process when they make consumption and investment decisions.

There is a reason that there are rules and regulations for the financial industry. We want to guard against over-regulation, but at some level, certain “speed bumps” serve as guard rails to make sure things do not spin out of control. There is a danger that purely tech-driven “disruption” inadvertently removes all speed bumps and guard rails.

In Facebook’s early days, the company’s motto was “move fast and break things”. Facebook has certainly broken a few things, even though one could argue it delivered tremendous value to various stakeholders, shareholders of Facebook being one. But the overall benefits and costs of Facebook to the society is an interesting question. There is a tendency for technology evangelicals to bring the ethos of the tech world – faster, more convenient, more “inclusive” by breaking down all barriers – to the rest of the world, including the finance world. It is important to rethink where the balance should be.

Lily Fang is Professor of Finance and The AXA Chaired Professor in Financial Market Risk at INSEAD

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SINGAPORE — One of the greatest promises of fintech is to enable more people to have access to a broader set of financial services with increasing convenience at lower costs. In short – Financial inclusion. Indeed, this is the general promise of innovation: improving people’s lives.

Source: https://news.yahoo.com/comment-fintech-can-there-be-too-much-of-a-good-thing-035657480.html

Fintech

Senior Central Bank Official Says Fintech the Key to Bridging China’s Digital Divides – China Banking News

A senior official from the Chinese central bank has highlighted the ability of fintech to bridge the country’s in resolve digital and wealth divides.

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A senior official from the Chinese central bank has highlighted the ability of fintech to bridge the country’s in resolve digital and wealth divides.

Fan Yifei (范一飞), deputy governor of the People’s Bank of China (PBOC), wrote in a recent essay that “”fintech is a major means for bridging the digital divide, and resolving the problem of unbalanced and inadequate development.”

The PBOC deputy governor highlighted the ability of fintech to bridge digital divides in three key areas in particular:

  • Resolve the digital development divide between urban and rural areas. “Comprehensive implementation of fintech invigorates rural village revitalisation demonstration projects, and drives the establishment of new services channels that connect offline and online, connect financial institutions and connect finance with the public sphere. The establishment of comprehensive services platform to benefit rural areas drives the in-depth integration of supply chain financial, commercial and goods flows, and permits the precision allocation of financial resources to key areas and critical links of the agricultural sector, helping to drive the modernised development of agriculture.”
  • Resolving the digital application divide between demographic groups. “High-frequency financial applications for daily life that focus on the elderly, ethnic minorities, the disabled and other demographic groups; customised mobile financial products that suit the elderly and different ethnic groups; the application of smart mobile equipment to extend the antennae of financial services and other measures strengthen the digital capabilities of users, continually increase the depth and breadth of services, and can enable the results of tech innovations to reach and benefit more people.”
  • Resolving the digital growth divide between institutions. “Large-scale financial institutions must play a demonstrative leadership role, and use digital transformation as an opportunity to invigorate the digital operating capabilities of the entire sector. Small and medium-sized financial institutions must become adept at using outside assistance and cooperating in the win-win acceleration of digital transformation, in order to revitalise regional economies and drive the healthy development of micro and small enterprises.”
  • Source: https://www.chinabankingnews.com/2021/10/20/pboc-official-says-fintech-the-key-to-bridging-chinas-digital-divide/

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    Global FinTech Markets, 2016-2020 & 2021-2026: API, AI, Blockchain, Distributed Computing, Payment, Fund Transfer, Personal Finance, Loans, & Insurance

    The “Global FinTech Market, By Technology, By Service, By Application, By Region, Competition Forecast & Opportunities, 2026” report has been added to ResearchAndMarkets.com’s offering.

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    DUBLIN, Oct. 13, 2021 /PRNewswire/ — The “Global FinTech Market, By Technology, By Service, By Application, By Region, Competition Forecast & Opportunities, 2026” report has been added to ResearchAndMarkets.com’s offering.

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    The Global FinTech Market was valued at USD7301.78 billion in 2020 and is projected to grow at a CAGR of 26.87% during the forecast period.

    Rising popularity for digital payments, increased investments in technology-based solutions, supportive government regulations, increased adoption of IOT devices are expected to positively influence the Global FinTech Market in the coming years.

    Rising innovations like mobile wallets, digitized money, paperless lending, etc., and adoption of e-commerce platforms across the economies, coupled with rising smartphone penetration have paved the way for increasing FinTech transactions. However, concerns related to data security, lack of mobile and technology expertise may hamper the FinTech market during the forecast period.

    The Global FinTech Market can be segmented into technology, service, application, and region. Based on technology, the market can be segmented into API, AI, blockchain, distributed computing and others, including big data, robotic process automation, etc. The AI segment is expected to witness the highest growth rate through 2026.

    AI has become a critical element of the FinTech industry in terms of collecting data, analyzing information, and creating customer-centric products. The banking firms across the globe, in order to prevent the loss of sensitive customer information, are implementing advanced risk analytics and fraud detection capabilities that are powered by AI. Increased implementation of advanced risk analytics and fraud detection is contributing to the growing share of the segment.

    Based on service, the market can be segmented into payment, fund transfers, personal finance, loans, insurance, and others including equity, wealth management, etc. The payment segment is expected to dominate the market in the year 2020, however the insurance segment is expected to grow at the fastest growth rate in the forecast period.

    Based on end-use industry, the market is sub-segmented into banking, insurance, securities, and others including ecommerce, ITR, etc. The banking segment captures the highest market share in the year 2020 and is expected to dominate the market in the forecast period as well. Banks and start-ups in this space are developing e-wallets and payment interfaces to maintain services & deliver a better and faster user experience.

    Regionally, the FinTech market has been segmented into various regions including Asia-Pacific, Europe, North America, South America, and Middle East & Africa. Among these regions, Asia-Pacific region is expected to exhibit the highest growth in the forecast period primarily on the account of expanding customer base, largest population share of Gen Z and millennials, and willingness to accept new technology and huge market opportunity to convert from cash to digital payments.

    Leading companies are developing advanced technologies and launching new products to stay competitive in the market. Other competitive strategies include mergers and acquisitions and new service developments.

    The major players operating in the Global FinTech Market are

    • Ant Group Co. Ltd.

    • Paypal Holdings, Inc.

    • Tencent Holdings Ltd.

    • Robinhood Markets, Inc.

    • Google Payment Corp.

    • One97 Communications Ltd.

    • Adyen NV.

    • Qudian Inc.

    • Afterpay, Limited

    • Nexi SpA

    • Klarna Bank AB

    • Social Finance, Inc

    • Avant, LLC

    Report Scope:

    Years considered for this report:

    • Historical Years: 2016-2019

    • Base Year: 2020

    • Estimated Year: 2021

    • Forecast Period: 2022-2026

    Global FinTech Market, By Technology:

    • API

    • AI

    • Blockchain

    • Distributed Computing

    • Others

    Global FinTech Market, By Service:

    • Payment

    • Fund Transfer

    • Personal Finance

    • Loans

    • Insurance

    • Others

    Global FinTech Market, By Application:

    • Banking

    • Insurance

    • Securities

    • Others

    Global FinTech Market, By Region:

    • Asia-Pacific

    • China

    • Japan

    • South Korea

    • India

    • Australia

    • North America

    • United States

    • Canada

    • Mexico

    • Europe

    • United Kingdom

    • Germany

    • France

    • Spain

    • Italy

    • Middle East & Africa

    • UAE

    • Saudi Arabia

    • Nigeria

    • South America

    • Brazil

    • Argentina

    • Colombia

    For more information about this report visit https://www.researchandmarkets.com/r/vxaxin

    Media Contact:
    Research and Markets
    Laura Wood, Senior Manager
    press@researchandmarkets.com

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    View original content:https://www.prnewswire.com/news-releases/global-fintech-markets-2016-2020–2021-2026-api-ai-blockchain-distributed-computing-payment-fund-transfer-personal-finance-loans–insurance-301399554.html

    SOURCE Research and Markets

    The Global FinTech Market was valued at USD7301.78 billion in 2020 and is projected to grow at a CAGR of 26.87% during the forecast period.

    Source: https://finance.yahoo.com/news/global-fintech-markets-2016-2020-170000318.html

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    RBI’s auto debit rule may trigger tax woes for fintech startups – NewsEverything Expertise

    Mumbai: The Reserve Financial institution of India’s (RBI) auto debit rule may convey tax problems for fintech corporations which have arrange platfor

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    Mumbai: The Reserve Financial institution of India’s (RBI)
    auto debit rule may convey tax problems for fintech corporations which have arrange platforms for banks to combine with a standard e-mandate platform to make sure compliance.
    Fintech corporations run the danger of attracting a 2% equalisation levy in addition to extra items and providers tax (GST) at 18% on a part of the cash they make by such an association, particularly in transactions the place an Indian citizen has subscribed providers of a overseas OTT participant or he/she buys items and providers from an organization not primarily based in India.

    Cost aggregators Razorpay, BillDesk and PayU have arrange platforms—MandateHQ, SiHub and Zion, respectively—that may present a “bridge” for banks to finish the transactions.

    With the introduction of a brand new middleman—other than financial institution—between the client and the abroad service provider institution (Netflix, Apple retailer, and so forth.), tax implications have cropped up. The fintech platform offers extra issue authentication, notifications to prospects and dashboard for subscription administration to banks for a charge.

    RBI-Auto-Debit

    How equalisation levy—2% cost on any transaction involving a overseas firm over the web—and GST shall be charged will rely on the construction of fintech participant’s entities and the way the transaction is routed, say tax consultants. They are saying there might be various methods the place the federal government’s new equalisation levy may come into play.

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    “The danger of the platforms attracting a 2% equalisation levy on the charge that platforms will cost to retailers exists,” stated Girish Vanvari, founder, tax advisory agency Transaction Sq.. “The two% equalisation levy — because the definition suggests — is relevant on any abroad transaction and it might be levied even the place the service provider or the businesses which are charged will not be primarily based in India.”
    First, if the financial institution from which the cash is being deducted isn’t primarily based in India or would not have a tax presence in India — the charge or any cash charged by the fintech platform will face 2% tax.

    The second chance will rely on how the transaction is structured. If the charge acquired even from an Indian financial institution would not straight come to an Indian entity — this too may appeal to a 2% tax.

    If the cash goes by a subsidiary of the fintech firm, say established in Singapore or the UAE earlier than it makes it to the overseas service provider, even these may appeal to the levy. And there’s a GST implication too, say tax consultants. If the cash deducted from an Indian’s debit or bank card goes by way of the fintech’s books earlier than it is remitted within the overseas retailers’ account, GST can come into play, say tax consultants.

    “Providers supplied by the fintech corporations for validating transactions may appeal to GST on each the arrange charges and transaction charges charged by them,” stated MS Mani, associate, DeloitteIndia.

    BillDesk and PayU didn’t reply to ET’s queries. “Our resolution doesn’t work together straight with on-line retailers once they arrange mandates for cardholders transacting with them,” stated Amitabh Tewary, chief innovation officer, Razorpay. “Razorpay doesn’t cost any charges to on-line retailers for this service.”

    RBI’s new guidelines that come into drive from October 1 mandate that banks can solely course of auto-debit transactions in the event that they ship a pre-debit notification to prospects not less than 24 hours earlier than the cost.

    Most banks neither have expertise nor do they want to spend money on it for enterprise such transactions and have as a substitute turned to fintech corporations to supply transaction platforms.

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    #RBIs #auto #debit #rule #tax #woes #fintech #startups

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    The second chance will rely on how the transaction is structured. If the charge acquired even from an Indian financial institution would not straight come to an Indian entity — this too may appeal to a 2% tax.

    Source: https://newseverything.in/rbis-auto-debit-rule-may-trigger-tax-woes-for-fintech-startups-newseverything-expertise/

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