by Ringa Raudla, Egert Juuse, Vytautas Kuokštis, Aleksandrs Cepilovs, Matti Ylönen

Financial technologies (FinTech) used to be material for science fiction movies, but suddenly they are everywhere. In fact, people barely think of their novelty anymore when paying with their cell phones, or when they trade stocks, cryptocurrencies, or currencies with mobile apps that bypass traditional banks. FinTech can also be used for credit scoring, client profiling, robo-advising, and insurance, just to name some examples. An important question in public policy is: how should policy react to such pervasive technological transformations?  

Given the systemic importance of the financial sector for the economy and the potential of the FinTech sector to contribute to employment and public revenue, governments’ policy stance towards FinTech is a topic of major importance. FinTech policy faces significant dilemmas when balancing risks and innovation, and the ensuing choices can profoundly affect financial systems and society. Hence, in choosing their national FinTech policy stances, governments are caught between competing pressures. They are expected to boost competition and innovation while containing risks, preventing the build-up of vulnerabilities, and avoiding reputational damage to a country’s financial system.