FinTech can solve problems but also create new ones, and it’s essential for all involved to guard against potential risks. “By working together, we can unlock the full promise of FinTech to ensure a smooth evolution to tomorrow’s financial system; safe, sound and serving the people who rely on it,” said Bank of Canada Senior Deputy Governor Carolyn Wilkins in a speech to Payments Canada in Calgary, Alberta.

Wilkins expects FinTech to lead to an evolution across a broad range of financial services, rather than the revolution some predict. Customers are more demanding, large non-financial players are entering the space and the inefficiency of some incumbents is opening the door for competition. “Incumbent financial institutions will adapt, new players will join the financial ecosystem and those with strong business models will survive,” she said.

Potential problems include operational and financial risks, moral hazard and “too big to fail.” Authorities must assess innovations in light of their impact on consumer protection, financial inclusion, market integrity, competition policy and financial stability. “Authorities should support innovation, but the bar will be high, especially for core financial services, and appropriately so.”

The Bank of Canada’s priority is to see upgrades made to core payment systems. “Now is the time to make our core systems more efficient and competitive,’’ Wilkins said. Another area of interest is distributed ledger technology (DLT). The Bank has formed a partnership with Payments Canada, Canadian banks and blockchain consortium R3 to conduct applied research into a DLT-based payment system. “Our only goal at this stage is to understand the mechanics, limits and possibilities of this technology. The plan is to build a rudimentary wholesale payment system to run experiments in a lab environment,” Wilkins noted.

The initiative includes a simulated settlement asset used as a medium of exchange within the system. “It is very much like the settlement balances in LVTS, except it is using DLT. Because it cannot be used anywhere else, it is a different animal altogether from a digital currency for widespread use. This is an experiment in the true sense of the word. I cannot think of a better way to understand this technology than to work with it. Other frameworks need to be investigated, and there are many hurdles that need to be cleared before such a system would ever be ready for prime time.”

By Scott Thompson




by Scott Thompson
Scott is Senior Editor at IBS Intelligence. You can follow him on Twitter and contact him at: