FinTech: Opportunities for all? Victoria Cleland, Chief Cashier P2P Financial Systems 2016 Conference, London 8 September 2016 1

Welcome 2

The Importance of Collaboration ‘it is hardly possible to overrate the value…of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar…such communication has always been…one of the primary sources of progress’ John Stuart Mill, 1848 One Bank Research Agenda – February 2015 ‘making progress on such a broad agenda requires input from the wider community of academics, policymakers and experts’ Open Forum – November 2015 Session on: ‘How financial innovation and technology support the economy’. 3

Technology Has Changed The Way We Live Our Lives Source: Google Images 4

And Has Disrupted Commerce Some incumbent businesses fail to adapt… While some new ones thrive. 5

Financial Technology – A Big Opportunity? FinTech: ‘new applications of technology that have the potential to change the way the current financial system is structured’ Source: World Economic Forum, August 2016 6

Investment and Interest in FinTech Global FinTech Financing Activity ($mns) Google Searches for ‘FinTech’ Source: Accenture / CB Insights Source: Google Analytics 7

FINANCE FinTech Impacts the Whole of the Financial Sector Deposits & Lending Payments Accounting FINANCE Insurance Financial data Investment

Peer-to-Peer Activity in the UK The UK P2P sector grew 84% in 2015, to £3.2 billion. Fastest growing models: Donation-based crowdfunding: up by 507% from £2m in 2014 to £12m in 2015. Equity-based crowdfunding: up by 295% from £84m raised in 2014 to £332m (including real estate) in 2015. US P2P platforms issued approximately $5.5bn loans in 2014. (Source: PwC, 2015) PwC’s analysis indicates the market could reach $150bn or higher by 2025. Source: University of Cambridge Research, 2016 9

Distributed Ledger Technology (DLT) Global interest: 24+ countries currently investing in DLT Bank experimentation: 80% of banks predicted to initiate DLT projects by 2017 Venture capital: US$1.4bn in investments over the past 3 years Research: 2,500+ patents filed over the last 3 years Central banks: 90+ central banks and corporations engaged in DLT discussions worldwide Consortium efforts: 90+ corporations have joined blockchain consortia Source: World Economic Forum, August 2016 10

Opportunities and Challenges for Central Banks? The Bank of England’s mission: ‘promote the good of the people of the UK by maintaining monetary and financial stability’. The key focus of the Bank in 2016: widening access to central bank money to non-bank Payment Services Providers; being open to providing access to central bank money to new forms of wholesale securities settlement; exploring the use of distributed ledger technology in our core activities; partnering with FinTech companies on projects of relevance to our mission; calibrating our regulatory approach to FinTech developments. 11

Distributed Ledger Technology (DLT) and Digital Currencies Quarterly Bulletin - September 2014: No current risk to Bank objectives from private digital currencies owing to their small size and limited adoption. But DLT considered an interesting innovation. DLT enables payment systems to operate in decentralised ways. We want to understand: How could DLT impact the financial system? Could the Bank utilise DLT in providing payments infrastructure? - Bitcoin (and alike) demonstrated that it is possible to transfer value securely without a trusted third party. 12

Provision of Central Bank Money (1) - Banknotes Since 1694, the Bank has provided universal access to central bank money via banknotes. New Fiver – issued on 13 September Peer-to-peer distributed payments in central bank money. 13

Yet New technology is Changing Payments Behaviour Value of payment methods used for spontaneous payments, indexed 2000=100 14

Provision of Central Bank Money (2) - RTGS The Bank has provided accounts for the settlement of interbank obligations since the mid-19th century. 1996: Real Time Gross Settlement (RTGS). Electronic payments in central bank money, centralised system. 2016: A wholesale review of RTGS: how we provide it, and who to. What next? Does the system need a new form of central bank money? 15

Is the Future a Central Bank-Issued Digital Currency? DLT could provide the technological means for the Bank to offer a Central Bank Digital Currency (CBDC): Wider, electronic, 24x7, national-currency-denominated access to the Banks balance sheet. ‘The macroeconomics of central bank issued digital currencies’ Barrdear and Kumhof, 2016. Settlement Banksx Universal Plus non-bank financial institutions Plus UK households Plus non-financial corporates 16

CBDC Multi-Year Research Programme Understanding the economic impact How would it affect the stability and price of bank funding? How could this be managed? What are the macroeconomic impacts of a CBDC? What could affect credit provision in the economy? What monetary and financial stability tools could the CBDC offer? Macroeconomic Legal and operational implications Financial Stability What are the implications of another digital currency gaining significant use in the UK? Is this likely? How would the Bank’s monetary policy operations be affected? Transition challenges The feasibility of using DLT What are the benefits to financial stability? Can privacy be guaranteed? Are there resilience benefits? Is the system scalable? Technology 17

External Engagement World class policy making requires world class research. July 2016: We launched a series of research questions covering the key issues on the feasibility and desirability of CBDC. We welcome your contributions. Earlier this year: The Bank launched the FinTech Accelerator: We will be working with new technology firms to help harness FinTech solutions that would support central banking. Applications closed 24 July 2016, but our next call for applications will open later this Autumn. 18

‘We need diversity of thought in the world to face new challenges’ Sir Tim Berners-Lee 19

Central Bank-Issued Digital Currency: www.bankofengland.co.uk/research DigitalCurrenciesTeam@bankofengland.co.uk FinTech Accelerator: www.bankofengland.co.uk/Pages/fintech/default.aspx FinTechAccelerator@bankofengland.co.uk 20