Global Government Fintech Lab 2024

A panel of experts discussed the key fintech issues facing public authorities – and put them in a broader context – at a recent Global Government Forum fintech event.

Financial technology is creating an increasing number of opportunities, but also challenges, for public sector authorities around the world.

A session of the Global Government Forum’s Fintech Lab – “Frontiers of fintech (and beyond)” – invited a panel of three experts to express their views on nine key topics: access to capital, artificial intelligence, blockchain, cryptocurrencies, digital currencies (including central ones) banking digital currencies – CBDC), digital identity, digital inclusion, green fintech and open data/”smart data”.

The three were invited to choose from the menu or to identify additional topics that deserved greater prominence.

“Thinking systemically”

Mai Santamaria, principal of the equity and financial advisory division of the Irish Department of Finance, opened by highlighting that some topics such as blockchain, CBDC and cryptocurrencies overlap and identifying a cross-cutting theme: “trust”. “Trust will impact CBDCs, digital ID, digital inclusion and open data, including how they will be used,” she said.

Governments generally “do not understand enough” how society values ​​trust and how it is “anchored in society”, he said – an often overlooked consideration as it ultimately drives citizens’ behavior and “should certainly inform” fintech supply choices. enhanced services and, more generally.

He made an analogy to the growth in the use of electric cars, saying implementation would involve public awareness and infrastructure. “We’re talking here [at the Lab] of fintech and digital and it’s a bit like talking about electric cars, and then you go out and there’s nowhere to plug it in to charge it,” he said. “We can’t talk about any of this without actually knowing that we have data centers , cloud providers and all that kind of stuff. Unless there’s a lot more “systems thinking” – and we’re putting that together – all of our best intentions when it comes to fintech and actually applying those technological changes to other products. as a government, where will they go?”.

When asked about the potential of blockchain, he described its use for public services as “complicated”. He referred to the possibility in some select jurisdictions globally to pay taxes using cryptocurrency, saying that the “element of openness” involved in blockchain types may “seem counterintuitive” for the provision and use of public services, for example people’s tax affairs.

It depends, of course, on the type of blockchain and whether it is public or private. He highlighted the use of smart contracts (blockchain-based digital contracts that are automatically executed when pre-determined terms and conditions are met) as an interesting area. “So, there are possible elements of blockchain that I think could be used more than just defining the general technology that we should use for public services,” she said.

To know more: Ireland hosts public sector pioneers in Dublin for third Fintech Lab

The “billion dollar” potential of Blockchain

Parma Bains, a financial sector expert at the International Monetary Fund’s Department of Money and Capital Markets, wanted to exploit the possibilities of blockchain, saying that things that can be done using blockchain can also be done on conventional platforms (often blockchains are not necessary).

“So, things like programmable payments – it’s just conditional programming logic that you can do it without the lockdown: we can do it anyway. Programmable money is something different (and potentially even something darker) but it exists.”

“Why does blockchain exist, at least in the form it exists now?”, he continued. “It exists to solve the double-spending problem, or to put it more simply, it simply creates trust in a trustless environment – ​​that’s what it’s all about.

“You have to ask the question: in what use case do you have data (widely or narrowly distributed, depending on whether it is public or private) and the ability to act on that data (whether it is permissioned or permissionless), where would useful? Where would it be useful where the data is dispersed and you need to verify and validate it, everyone needs to have access to that data [and] can they see that data in real time?”.

“It’s useful somewhere – and the person who answers that question will become a billionaire,” he added.

Cyber ​​security and tokenization

Mari-Liis Kukk, head of the innovation department at the Estonian Financial Supervision and Resolution Authority, began by saying that cybersecurity “definitely” deserves a mention as a crucial topic, before highlighting a very successful initiative carried out last year by the Bank for International Settlements (BIS).

The Switzerland-based institution published a “blueprint” for a new type of financial infrastructure – a “unified registry” – in a special chapter of its annual economic report for 2023.

The infrastructure would combine tokenized forms of CBDC with tokenized bank deposits and other tokenized credits on a programmable platform.

Describing the global monetary system as “on the cusp of another great leap”, the BIS said that “after dematerialisation and digitalisation, the key development is tokenisation – the process of digitally representing claims on a programmable platform”.

The unified ledger proposal does not reference blockchain, Kukk pointed out. “This ‘unified registry’ is still a concept and consists [of] much more than just the technology behind it,” he said.

Echoing these comments, Bains pointed out: “Just because something is technically feasible, doesn’t make it commercially viable,” adding that “we see this a lot, especially in the fintech space.”

To know more: Massachusetts Municipality Issues First Blockchain Bonds in US Public Sector

Cryptocurrencies and data

Regarding cryptocurrencies, Bains described “a lot of movement over the last 12 months” around new recommendations and rules from bodies such as the Financial Stability Board, the Basel Committee on Banking Supervision and the International Organization of Securities Commissions securities (IOSCO).

On the topic of data, he underlined the importance of good regulation to guarantee consumer confidence. “We want data to flow through the economy as seamlessly as possible, but it’s important to create some friction because regulation is a cornerstone of a well-functioning market. It is not an inhibitor.”

Data protection frameworks, he stressed, “are not a given in many countries” and, where they exist, “they are not always so robust”. “Once you have that baseline, you can build data portability on top of that, like open banking [and] open finance,” he said.

But then, he noted, the incentives for commitment must be clear. “For me, the way we interact with the digital economy is very different from the way we interact with each other now because in the digital world there is no privacy. So, the question is: how do you build the trust needed to allow actors to share their data in a meaningful way while ensuring privacy?” You spoke of “exciting” research in this field, saying that “privacy-enhancing technologies” are promising.

“Fintech bloodline”

An audience member asked about digital resilience and whether systems were at risk of a “single point of failure” and whether this could “bring down the system”.

Santamaria referred to his initial observations on systems thinking. “It’s good to look at technologies, but we have to think from a public service and government perspective. Our citizens don’t think about it because, instinctively, they count on us [government] look at this.”

Large infrastructure represents “the bloodline of fintech, of all services,” he said.

In this regard he echoed Kukk’s point about the crucial importance of cybersecurity. “Risk really goes hand in hand with fintech,” he said.

The dynamic fintech landscape

The three speakers offered an overall perspective on the multifaceted and dynamic landscape of “fintech for government.”

Santamaria’s emphasis on systems thinking, Bains’ observations on data privacy in the context of trust, and Kukk’s focus on possibilities for the global financial system combined to round out the 2024 Lab with “big picture” considerations.

Their comments also served to highlight the importance of regulation, including global standards and recommendations, as public authorities consider the extent to which they could and should explore the possibilities of fintech.

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