New financial technology—so-called fintech—has rapidly become an important part of the financial industry, from mobile payment systems to cryptocurrencies. But it also represents a new area of national security vulnerability for the United States. The U.S. is a leader in fintech investment and development for now, but other countries are quickly catching up in key areas. U.S. policymakers should act to improve fintech regulations and coordinate a strategy in order to ensure that this kind of technology remains a strength, rather than a vulnerability, for the U.S.
There has been a huge investment boom in fintech in recent years, with an estimated $111 billion or more invested globally in 2018, according to research from KPMG. Fintech has seen more mainstream use, especially in countries like China, where mobile payments now outstrip any other country in the world—there were over $17 trillion in such payments in China in 2017—and where a range of fintech products are widely used, from peer-to-peer lending platforms to app-based insurance and investment products.
For the U.S., leading in the development of fintech means maintaining the strength and influence of the U.S. financial system. Fintech also holds tremendous promise in making financial activity more efficient, transparent and cheaper overall. It can better protect banks from fraud and human error, for example, while potentially fostering more inclusive financial systems by offering greater access to savings accounts, credit and loans, and a means to send remittances. All of that is worth encouraging in the U.S. through greater investment and incentives.