The president of the San Francisco Fed has hailed the potential of Silicon Valley fintech startups to transform financial services but warned them that they must expect to be regulated like old-fashioned banks.
Speaking to a roomful of fintech enthusiasts at the LendIt USA conference, John Williams expressed his excitement at the innovation in financial technology but also sought to inject a dose of realism.
"People from regulatory agencies don’t highlight potential downsides because we’re dour, unfun pessimists — or at least not only because we’re dour, unfun pessimists. We do it because we have to look not just at what’s possible in the sense of wonder and limitless options, but at what’s possible in the sense of the economist’s greatest concern: the unintended consequence."
As the fintech industry grows and becomes more entwined with the financial sector, the risks to the economy also grow.
"Moreover, for our financial system to be efficient, it’s important that we have a level playing field, regardless of how institutions prefer to describe themselves or what kind of charter they hold. As a matter of principle, if it walks like a duck and quacks like a duck, it should be regulated like a duck."
So, while praising the potential of fintech to bring services such as savings and lending to lower-income families and small businesses, he warned that the technology could be used to prey on the underbanked through predatory lending and fraud.
"I don’t want to see fintech’s positive potential hijacked to become a source of new, more powerful platforms to prey on consumers on a massive scale," he told his audience.
Similarly, Williams talked about the potential of big data for helping to tackle things such as money laundering and the funding of terrorist and criminal organisations. But, this raises privacy issues, while other fintech areas, such as cryptocurrencies, have the potential to help crooks.
"In summary, there’s no question that fintech is going to change the face of financial services on a global scale. I am excited for the changes to come, and I see the potency of the possible. But for fintech’s potential to be met, we need to make sure we don’t reinvent or exacerbate shortcomings that have plagued our financial system thus far.
"In that regard, well-designed regulation that protects consumers, fosters inclusionary rather than exclusionary practices, and enhances the fairness and resilience of the financial system should help rather than hinder fintech’s contribution to creating a better financial system and economy."