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The role and impact of new technologies and market innovations


The role and impact of new technologies and market innovations

July 7, 2014 9:09 AM | Posted by Gillian Brown, Melanie Wong | Print this page

The release of the Financial System Inquiry's interim report on July 15 will mark a significant milestone, with the sector's last review taking place over 17 years ago. One issue that the Inquiry will report on is the role and impact of new technologies, market innovations, and changing consumer preferences and demography on the financial system.

Technological developments are undoubtedly transforming the financial system and impacting financial service providers. Technology has been driving change, particularly in terms of payment systems utilised by customers. The rapidly changing landscape brings with it numerous advantages for customers, including increased choice, competition, and convenience. Face to face transactions are fast declining, with most customers opting for electronic methods.

The majority of Inquiry submissions recognise the benefits generated by changes in technology, whilst highlighting the need for these to be managed appropriately. The financial system regulatory framework is essential to ensure that the changes are well adapted and risks are adequately managed. A number of submissions promote regulation that will maintain stability and security, without inhibiting innovation and technological advancements. This will ensure that entry of new competitors does not compromise customer protection, and therefore customers' confidence in the system.

In a recent speech, David Murray recognised that 'a key trade-off will be between stability and fostering an environment where innovation and technology can better meet user needs'. Technology will continue to develop in ways that are difficult to forecast. Regulation must recognise the uncertainty relating to how these advancements will shape the financial system. For this reason, as the Australian Bankers' Association suggested in its submission, it needs to be principle-based and flexible.

There is no doubt that the Financial System Inquiry will need to assess how effective the current regulatory framework will be in terms of facilitating impending technology changes. It will be interesting to see whether a balance can be struck between stability and risk management on the one hand, and competition, efficiency and development opportunities on the other.

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