Political, business leaders size up stability risks from fintech growth

WASHINGTON, April 19 (Reuters) - New companies and established banks are spreading the use of financial technology, commonly known as “fintech,” around the world, raising questions about how fast-evolving services such as person-to-person lending can affect financial stability.

On Tuesday, a collection of executives from large banks, start-ups and regulatory agencies such as the Bank of England and Western Union, put forward four recommendations for a global approach to fintech under the banner of the World Economic Forum, the international non-profit that hosts the major Davos meeting each year.

They suggested debating “the ethical use of data,” establishing a forum for the public and private sectors to discuss issues in fintech, setting industry standards and monitoring changes so supervisors and regulators can mitigate potential risks.

Fintech was once dominated by start-ups creating software for financial services as an alternative to traditional methods, such as a firm building an on-line platform to match mortgage borrowers to lenders.

Richard Eldridge, the CEO of Lenddo, which provides credit scores using non-traditional data in the developing world, said a few years ago big banks were “stand-offish” about fintech. Now they are embracing it to serve more people and the industry is experiencing “exciting times,” he said.

Citigroup Inc in China is looking to expand its digital platform after data showed 95 percent of its clients’ transactions are not made through a branch.

In areas where traditional banking and data collection do not reach, fintech firms step in, Eldridge said. But, he said, there needs to be a wide understanding of when data should be used.

Eldridge contributed to the forum’s fintech paper, which also emphasized industry self-regulation, saying innovators and users have the best sense of the direction of the fast-changing technology.

“If the industries are regulating themselves they can maintain these standards in a cutting-edge way,” he said. “It’s good practice.”

On Monday, U.S. Senators Sherrod Brown of Ohio, Jeff Merkley of Oregon, and Jeanne Shaheen of New Hampshire - all Democrats who advocate strong financial regulation - asked the Government Accountability Office to review fintech. They also want the non-partisan auditing agency to look at data security and the role of regulation.

The senators raised questions about the structures and underwriting of consumer and small business loans in fintech, as well.

“As we saw during the crisis, gaps in understanding and regulation of emerging financial products may result in predatory lending, consumer abuse, or systemic issues,” they wrote to the GAO. (Reporting by Lisa Lambert; Editing by Bill Trott)