This blog has frequently touched on the numerous ways that fintech products can benefit both consumers and businesses. However, it’s also important to recognize the potential for governments to take advantage of fintech.
Discussion about the relationship between governments and fintech companies tends to focus on regulations. Although the fintech revolution has been continuing at a fairly steady pace, regulations often prevent these services from reaching users more quickly.
This is a valid topic worth covering. That said, it’s not the only way to approach this general subject. Everyone from fintech startups to lawmakers should be aware of the various ways that fintech can benefit governments. They include the following:
Security is obviously important for fintech products. The need to guard against fraud and hackers is increasingly essential in the digital age.
Luckily, this is a problem that fintech startups aim to solve. For instance, some have developed AI-based products that enable companies to identify risk for financial crimes that may impact them. Emerging fintech solutions help companies to identify such customers during the onboarding process.
Private companies may not be the only ones to benefit from this type of solution. If a fintech startup creates a reliable product to identify potential criminals, that product could be modified for use by government agencies. The FBI would almost certainly be interested in coordinating with innovators to leverage technology to reduce financial crime.
Some governments have already begun exploring this idea. For example, in the UK, law enforcement agencies have partnered with fintech startups to help them to better understand how to use fintech in their operations. If these partnerships prove beneficial (which they likely will), the odds are good that other law enforcement agencies will follow suit.
Facilitate Tax Payments
Several of the ways that governments can use fintech to their advantage aren’t merely in theory. On the contrary, they’re already being put into action. Consider the example of Ohio. Recently, it became the first state to allow citizens to pay their taxes via cryptocurrency. Since cryptocurrency relies on blockchain technology, which ensures that every transaction is recorded in a safe ledger, this approach can improve payment transparency.
It also simply provides citizens with more options for making tax payments. Additionally, because accepting tax payments through new cryptocurrency platforms involves lower fees than accepting payments through electronic payment systems, governments can save money. It’s a win for everyone involved.
Make Payments More Efficiently
Fintech is a fairly broad term that applies to a wide range of products and services. That said, fintech products often facilitate various types of payments for businesses with greater efficiency than ever before. For example, through blockchain technology, fintech companies can enable greater transparency in cross-border transactions, making it easier for businesses to reach international customers.
Some government leaders throughout the world have taken notice. By using fintech services to make payments between various agencies, departments, and even nations, government entities can operate more efficiently. This will allow them to better serve their citizens. When less time is devoted to financial tasks, more time can be spent on governing.
Improve the Loan Process
Government entities such as the Small Business Administration sometimes guarantee a portion of business loans to reduce the risk for lenders. Their goal is to encourage economic development. When the government steps in to offer protection, lenders are more likely to approve loans.
That’s not to say it’s easy for all small business owners to acquire loans. The SBA still evaluates applicants carefully before deciding to grant approval.
This is yet another instance in which fintech can be helpful. Recently, many small business owners have found that fintech-based lending companies are more likely to approve loans that traditional lending firms won’t.
They use technology to gather more information about an applicant from a variety of digital sources. This makes it easier for them to accurately determine if an applicant is worthy of a loan.
The SBA and similar agencies might work with fintech companies to use technology in the same capacity. Business owners could enjoy increased access to funding when the SBA is better-equipped to make accurate judgements.
This is good for governments—and their citizens—in general. When small business owners have more opportunities to grow, their local economies tend to benefit, as well. That’s a major reason why lawmakers are seeking ways to encourage greater fintech innovation while also focusing on the importance of regulations.
These are merely a few examples of the value that fintech can offer to governments throughout the world. As technology improves, it’s likely that new types of uses will emerge. This is just the beginning of a massive shift.