International Monetary Fund Managing Director Christine Lagarde warned on Saturday that the increasing presence of technology giants using big data and artificial intelligence could cause a significant disruption to the world’s financial system.
The rapid development of financial technology (fintech) has increased access to cheap payment and settlement systems for low-income households in emerging countries where traditional banking networks are scarce.
But it has raised concern about the increasing dominance of big technology firms in mobile payments, which could force global policymakers to rethink the way they regulate the banking system and ensure financial settlements are executed safely.
“A significant disruption to the financial landscape is likely to come from the big tech firms, who will use their enormous customer bases and deep pockets to offer financial products based on big data and artificial intelligence,” Lagarde told a symposium on financial technology held on the sidelines of the G20 finance leaders’ meeting in Fukuoka, southern Japan.
While such innovation may help modernise financial markets, they could make the financial system vulnerable such by putting payment and settlement systems under the control of a handful of technology giants, she added.
“This presents a unique systemic challenge to financial stability and efficiency, and one I hope we can touch on during the G20, and address in a cooperative and consistent fashion.”
Lagarde said China presents an example of the trade-off between benefits and challenges posed by financial technology.
“Over the last five years, technology growth in China has been extremely successful and allowed millions of new entrants to benefit from access to financial products and the creation of high-quality jobs,” she said.
“But it has also led to two firms controlling more than 90% of the mobile payments market.”
Addressing the pros and cons of financial innovation is among topics of debate at the two-day meeting of Group of 20 finance ministers and central bank heads that began on Saturday.