Context
Technology and digitalisation are quickly changing the functioning of the financial sector. Innovative applications of digital technology for financial services, or Fintech, are being used to change the relationship between financial consumers and service providers, and are helping to improve communication between consumers and providers. Consumers are increasing their engagement as a result.
Developments in financial markets are being driven by digital technologies and innovation. Technology and digitalisation, and their related applications are affecting the management and delivery of insurance and pensions. Where regulation and legal developments are affected, in turn they have feedback effects on digitalisation.
The study
This study compiles a series of articles that focus on the impact of digitalisation and technology in the areas of financial markets, insurance, and private pensions. It explores the tools and policies needed to better outcomes and management of the risks involved with digitisation. The document contains five articles which examine digitisation and finance in relation to pensions, the insurance sector, financial advice and banking standards.
The first article provides a framework to help financial regulators understand the developments in financial markets being driven by digital technologies; the second provides an overview of how digital technology is being used to improve pension design and delivery; whilst the third examines the various ways in which technology and innovation are affecting the insurance sector. The final two articles focus on applications of technology and digitalisation, using examples to discuss the benefits, risks and challenges generated by digital technology.
Key findings:
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Digitalisation in finance: Financial regulators need to understand the developments in financial markets being driven by digital technologies and innovation, and the regulatory implications of these developments. The first article draws a clear distinction between the underlying technologies and their applications to financial services, and addresses how these developments are affecting the various aspects of the financial landscape, and the implications this has for financial markets.
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Technology, digitalisation, design and delivery: The second article examines how digital technology is being used to improve pension design and delivery, and how regulators are managing subsequent changes. Innovation hubs and regulatory sandboxes are emerging as key components of governments’ efforts to support the development of Fintech and help new businesses understand how existing regulation applies to their ideas. The goal of these services is to help Fintech companies understand how the regulation applies to their ideas and to facilitate the registration or licensing process, which can significantly reduce start-up costs and time-to-market. This approach helps to ensure that the business models are compliant with requirements put in place to protect consumers.
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Technology, digitalisation and insurance: The third article examines how technology and innovation are affecting the insurance sector, and where regulation and legal developments have had feedback effects on digitalisation. The use of regulatory platforms to allow innovative technologies to enter the insurance market has had benefits (e.g. more customised insurance coverage to more people), but digital offerings need to satisfy the requirements of insurance regulations as well as wider data protection and cyber security considerations. The article concludes with some insights into how these developments could affect the future of the insurance sector.
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Digitisation and financial advice: The fourth article provides an overview of the types of robo-advisor that are now available. The robo-advice model has emerged as one potential solution to the need to increase the accessibility and affordability of advice and support for individuals seeking to invest savings for retirement. But these models also pose risks as they challenge traditional distribution channels, and are rapidly gaining market share in terms of assets under management. Policy makers need to ensure that existing legislation are suitably applied in areas such as duty of care requirements, avoidance of conflicts of interest between providers and consumers, transparency of disclosure and access to redress in the case of an unfair outcome for the consumer.
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Digitisation an open banking: The final article considers, the open application programming interface (API) in banking. It looks at the creation of open API standards in banking and explores the competition problems that these standards address. It argues that by fundamentally changing the way in which consumers buy and use banking services this method represents the development of an entrepreneurial approach to remedying malfunctioning markets. The article also underlines the importance of competition authorities having the ability to investigate market failures on the demand side and to take action to resolve those failures.
Points to consider:
Methodological limitations:
- The study is a series of in-depth articles which look at a range of issues relating to digitisation and finance.
- It is written by researchers from the OECD. It is limited in the sense that it only represents their views and does not offer alternate perspectives, however it does offer a detailed and valuable overview of current developments and challenges in the field.
Relevance:
- The study is highly relevant to the field of digitisation and finance.
Generalisability/ transferability:
- The study is transferable in that it addresses global issues from a global perspective. It does not offer any country or region-specific data.
