The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute (ADBI), the Asian
Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility
for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

CENTRAL BANK DIGITAL CURRENCY

AND FINTECH DEVELOPMENT IN ASIA
COMMENTS BY THORSTEN BECK
 IS THIS TIME DIFFERENT?
• Financial innovation has been around for as long as finance
• New financial intermediaries as reaction to real sector demand: investment banks in 19th, venture capitalists in 20th
centuries
• Role of technology:
• Introduction of ATM and telco innovation helped trigger branch deregulation (and thus disruption) in US banking sector
• IT revolution – use of hard data in credit scoring
• Mobile money revolution started by telcos

• Regulatory constraints provide impetus for new intermediaries

• Money market funds in the U.S.

• This wave of financial innovation:

• Big Data and Artificial Intelligence provides new opportunities for intermediation
• Blockchain provides new opportunities for payments and smart contract (enforcement)
• Emergence of new players: FinTech and BigTech
THE RISE OF FINTECH AND BIGTECH

Source: Frost et al. (2020)

FROM FINTECH TO BIGTECH – WHAT IS NEW?

• Data (lots of them) outside banking sector

• Network (externalities): large platform/network based tech companies with resources and
data available to branch out into financial service provision
• Artificial intelligence (turn soft data into hard data)
• A new type of bundling (non-financial with financial services).
• Important distinction: Different models for BigTech: offering platforms vs. offering financial
services
• What does this imply for incentives? For credit cycles?

• BigTech is a world of permanent disruption – what implications for financial stability during
transition periods
WHAT CAN FINTECH AND BIGTECH DO AND
WHAT CAN THEY NOT?
• Payment services – wallets, direct payments (outside standard payment system)
• Use of block-chain (example: cross-border remittances by Ecobank in Africa)

• Financial intermediation
• Banks keep money-creating function
• BUT: BigTech issued currencies (Libra) – can they take this role?

• Risk management services

• Smart contracts
• Risk diversification potential and network externalities

• FinTech and BigTech focus on segments where (i) have cost advantage (large scale, small
value) and (ii) most profitable
BIG DATA AND AI:
HARD VS. SOFT INFORMATION
• Availability of more data and ability to process them has increased efficiency and outreach of
financial sector enormously
• Credit scoring for SMEs and consumer credit
• Overcome lack of hard assets, documentation etc.
• Allow costumers to build and own their reputation
• Off to the corner – give up on the softies? NO
• Relationship vs. transaction-based lending during the crisis (Bolton et al., 2017; Beck et al., 2018)
• Have you talked to your banker recently?
• Looking for customer service – or rather the police? Example N26
 BIG BANKS VS. BIG TECH

• DNA cycle implies winner takes all (remember Myspace?) – rise of new systemically important
institutions?
• Competition implications (capturing other markets)
• Further increase in correlated behavior? Among “financial” institutions, market participants?
• New forms of risk: cyber risk
• Stability implications – too big to fail? Access to financial safety net?
• Not subject to formal safety net, but what in times of crisis (remember MMF in US in 2008)

• Consolidated supervision – spill-over risks within platform companies

• Supervisory cooperation (stability, competition, privacy)
• Cross-border dimension – these are not national firms
MORE DATA - MORE INCLUSION AND EFFICIENCY?

Important difference in views: rational (credit constraints) vs. behavioural (myopic, literacy)
• Rational view: more data allows more inclusion, lower costs allow more outreach
• Behavioural view: more data allow price discrimination and targeted shrouding (more
important in finance, given intertemporal nature of contracts)
• Does better data availability also give an advantage to BigTechs?
• Need for stronger consumer protection?
• See work by Antoinette Schoar and others
• Who Owns the Data?
THE MANY DIFFERENT FORMS OF MONEY

Source: Bech and Garratt(2017)

PUBLIC POLICY IMPLICATIONS
FROM REGULATORY SANDBOX TO REGULATORY PERIMETER
Innovation and competition Shadow banking
• Focus on efficiency, deepening and access • Focus on regulatory perimeter
• Consumer-centric approach • Potential source of new risks
• Allow new entry, including from non-bank financial • KYC concerns
institutions
• Regulatory sandbox Providers of credit
services
Risk-based and functional approach to regulation
• Proportionality (but how to define?) Providers of store-
of-value services
• Equal treatment of providers of same service (activity-based rather than (not backed by safe
assets)
institution-based regulation)
Providers of store-
• Cooperation/public on infrastructure, competition on delivery of-value services
(fully backed by
• Stronger focus on data and their portability safe assets)

Payment services
THANK YOU
THORSTEN BECK

WWW.THORSTENBECK.COM
@TL_BECK_LONDON