The FinTech Adoption Index for services offered by fintech organizations, divided into five broad categories – money transfers and payment services, financial planning tools, savings and investments, borrowing and insurance, indicates that money transfers and payment services are continuing to lead the fintech charge with adoption standing at 50% in 2017 and 88% of consumers anticipating of doing so in the future. This rapid rise in fintech organizations has posed many dilemmas: What are the benefits that fintechs bring to the society, on the one hand, and what are the risks that they create, on the other? Is it the end of banking or are banks going to team up with the newcomers? One of the main concerns in this regard is that while fintech companies increase financial inclusion, facilitate the access to finance and lead to more competitive markets, they can also be conducive to cutting costs and rising risks in the traditional banking segment. Against this background, the FinTech topic has received an increasing attention in the central banking community, including our central bank. We have been closely monitoring the fintech developments, evaluating the benefits and risks that they bring and trying to strike a right balance given the local context. An important step in this direction is the draft law on payments that is expected to provide impulse for new companies with innovative, but safe financial services.
It is perhaps not a great surprise then that their central projections tend to cluster in a remarkably narrow range. For example, take the forecasters who were surveyed by Reuters prior to the July MPC meeting last year. At that point there were only two out of 47 who expected interest rates to rise above 5% by now and only one expected them to be below 4.25%. Fast forward to the most recent survey and you will see that none of the 52 expect rates to go above 6% in the next year and only two expect rates to go below 5.5%. To gauge the real range of uncertainty you need to look beyond the central forecasts at the full probability distribution of possible outcomes. The fact that most forecasters agree on the prospect does not mean it is likely to happen. Central banks need to be particularly cautious in putting weight on market expectations and outside forecasts because they are based at least in part on judgements about what we will do. In my view it is sensible for independent forecasters to assume that we will do our job and keep inflation low; but we can’t take comfort from the fact that most external forecasters therefore expect inflation to return and stay around target – its our job to justify their faith and keep their confidence. We must avoid chasing our own tail. Of course, the uncertainty of the future and of the past is a factor in our decisions on interest rates.