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.
European governments have adopted varying policy stances towards FinTech, ranging from proactive promotion (as in the UK) to a more cautious approach (as in Germany). However, we still lack knowledge about factors that drive governments’ FinTech policy decisions. In our recent article published in Policy & Politics, Drivers of FinTech policy evolution: the role of policy learning and institutions, we propose that important factors driving the government’s FinTech policy stance relate to policy learning and the institutional arrangements for financial supervision.
Empirically, we examine the plausibility of these ideas. Our research question is: how have policy learning and institutional structures influenced the evolution of FinTech policy stances in the Baltic states in 2016-2023? With similar political and economic systems but different FinTech policy trajectories, they offer an excellent opportunity to examine factors that influence the evolution of FinTech policy stances. Lessons drawn from the Baltic states can also have important takeaways for other countries.
We use policy documents, media articles, and semi-structured interviews with key policymakers to address these questions. Our study corroborates the importance of policy learning in explaining the evolution of FinTech policy. We demonstrate that, in the Baltic countries, the accumulated knowledge about the risks of FinTech led policymakers to revise their initial policy beliefs and adopt a more cautious policy stance over time. In particular, owing to the scandals, policy fiascos, and crises related to money laundering, policymakers in the Baltic countries have become aware of policy failures and, subsequently, taken a more conservative stance. We also find that the architecture of financial supervision influences FinTech policy stance: unified supervision under a central bank fosters a more proactive approach.
These lessons of our study are of importance internationally, in a situation where various countries are assessing their stances toward FinTech. On the one hand, financial systems that work well can boost economic development. On the other hand, various financial crises also remind us of the perils of lacking financial regulations. Technology is progressing fast, emphasising the need for regulators to keep up with this momentum.
You can read the original research in Policy & Politics at:
Raudla, R., Juuse, E., Kuokštis, V., Cepilovs, A., & Ylönen, M. (2024). Drivers of fintech policy evolution: the role of policy learning and institutions. Policy & Politics (published online ahead of print 2024) from https://doi.org/10.1332/03055736Y2024D000000042
If you enjoyed this blog post, you may also be interested to read the Policy & Politics Special issue:
Policy learning and policy innovation: interactions and intersections. Guest edited by Claire A. Dunlop, Claudio M. Radaelli, Ellen Wayenberg and Bishoy L. Zaki available to read at: https://bristoluniversitypressdigital.com/view/journals/pp/52/4/pp.52.issue-4.xml
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