A report on four subsectors of financial technology, including how fintech products and services are regulated, has been issued by the Government Accountability Office.
The GAO’s report, Financial Technology: Information on Subsectors and Regulatory Oversight, is the first in a planned fintech series and looks at the segments of marketplace lending, mobile payments, digital wealth management and distributed ledger technology (blockchain).
The report looks at each subsector and provides data on several aspects: what it is and how it works; who uses it; potential benefits; potential risks; industry trends; and regulation and oversight.
With the increasing reliance on fintech by consumers to make payments, take out student and other loans, receive investment advice and choose investments for retirement and brokerage accounts—particularly among younger generations—the proliferation of fintech is growing in many ways, and penetrating segments of the population that may not be utilizing conventional financial products and services.
Mobile payments, in particular, appeal to underbanked people (a 2015 survey by the FDIC, the report says, found that 20 percent of households in the U.S. were underbanked, “meaning that the household had an account at an insured institution but also obtained financial services and products outside of the banking system”).
And a 2015 survey from the Federal Reserve indicated that a higher percentage of underbanked consumers used mobile payments than fully banked respondents (34 percent versus 20 percent).
Digital wealth management is another subsector that is attracting “underserved segments such as customers with smaller asset amounts than those of traditional consumers of wealth management services,” the report says. The convenience of using a mobile device to change or check on portfolios, seek advice and send instructions is attractive to many, and the lower fees associated with the subsector attracts those who are wary of the cost of financial services.
In addition, the report points out that while traditional firms may require minimum investment amounts of $250,000, some digital platforms require a minimum of approximately $500 or no minimum at all—and some platforms may not require customers to maintain minimum balance amounts.
Regulation of these subsectors depends on the extent to which the firms provide a regulated service and the format in which the services are provided.
The GAO has made no recommendations in this first report, which has been sent to congressional requesters, agencies and other interested parties.