Saudi finance minister discusses risks, benefits of financial innovation at WEF 2023
DAVOS: Saudi Arabia’s Finance Minister Mohammed al-Jadaan was among several prominent government and private sector participants who explored the risks and benefits of innovation for financial institutions at a World Economic Forum panel discussion in Davos on Tuesday.
Al-Jadaan opened the session by highlighting the “legitimate concern and need” from both private sector actors and traditional financial institutions. He added that both would need to work together to address relevant challenges.
The minister noted that financial innovation has been sought because of benefits including inclusiveness, but warned that regulators need to be vigilant to ensure that these innovations do not affect market stability.
“Traditional financial institutions are under pressure racing to innovate as these challenger innovators are bringing new ways of doing business that will require traditional institutions to tackle and catch up,” he said.
Lynn Martin, president of the NYSE Group, said regulators can play an important role in bringing financial innovators into traditional financial institutions.
“We need regulators to tell us what the guideposts are, what the rules are, to bring regulated structures into more traditional structures,” Martin said.
Mark Suzman, CEO of the Bill & Melinda Gates Foundation, said that in the long term financial innovation in general, if properly democratised, can be an enabling platform to ensure widespread prosperity, including for the world’s poorest. Suzman said this can be achieved particularly through the expansion of digital payment systems.
“One of the expectations of the pandemic was really a huge expansion of digital payment systems, often government-to-person digital payment systems that bring people together whether they are small farmers in Africa or South Asia, or new banking systems,” Suzman said. told the panel.
financial inclusion
PayPal CEO Dan Schulman said there are at least 2 billion people in the world today who are outside the financial system, and at least 2 billion who are poorly served by it. They pay higher fees or interest rates for services for which more money pays less.
“We have a great financial system with integrity behind it. But I don’t think it’s doing the job it needs to do to be an inclusive economy that brings everyone together,” Schulman said.
Schulman said safeguards and public and private partnerships were needed, as well as feedback loops between the two sectors, to put guardrails around responsible innovation.
“Right now things are moving so fast that it is very difficult for regulators and private companies to keep up,” he said.
“Banks are tech companies just as tech companies are also financial services players. Right now we are all tech companies,” he said.
“Whether it is AI that is ready to take off and take off, or new forms of access like 5G… mix them all together and you will redefine the financial system. It will happen,” he said.
Schulman said that one way to make the financial sector safe, secure and inclusive is through technological innovations such as blockchain.
“There are things like blockchain that get a bad name because they are linked to crypto,” he said.
He added that the only risk is crypto, which he referred to as a risk asset. However, he pointed out that the underlying technology of the blockchain “has performed perfectly.”
“The promise of a distributed ledger is that it can be faster and cheaper so that you can have transactions and settle them instantly without any intermediaries, (and) reduce costs,” he said.
Schulman said that doing things fast and cheap was important because it would be accessible to more people.