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A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation - Comprehensive Report on New Services, Data Collection, Privacy, Lending, Credit Models, Payments

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This important report was issued by the Treasury Department in 2018. Nonbank financial firms play important roles in providing financial services to U.S. consumers and businesses by providing credit to the economy across a wide range of retail and commercial asset classes. Nonbanks are well integrated into the U.S. payments system and play key roles such as facilitating ba This important report was issued by the Treasury Department in 2018. Nonbank financial firms play important roles in providing financial services to U.S. consumers and businesses by providing credit to the economy across a wide range of retail and commercial asset classes. Nonbanks are well integrated into the U.S. payments system and play key roles such as facilitating back-end check processing; enabling card issuance, processing, and network activities; and providing customer-facing digital payments software. Nonbank financial firms also play important roles in capital markets and in providing financial advice and execution services to retail investors, among a range of other services.The financial crisis altered the environment in which banks and nonbanks compete to provide financial services. Specifically, many traditional financial companies such as banks, credit unions, and insurance companies experienced significant distress during the crisis. This distress caused the insolvency or restructuring of many existing financial companies, particularly those with volatile funding sources and concentrated balance sheets. The government responded to this distress, and the unprecedented magnitude of taxpayer support it triggered, by writing far-reaching laws that mandated the adoption of hundreds of new regulations. In some cases, these policy changes made certain product segments unprofitable for banks, thereby driving activity outside of the banking sector and creating opportunities for emerging nonbank financial firms to address unmet market demands.In addition to other benefits, innovations in financial technology expand access to services for underserved individuals or small businesses and improve the ease of use, speed, and cost of such services. Businesses providing financial services benefit from opportunities to improve their product offerings to win market share and reduce per-customer operational costs.Expanded access to credit and financial services. Digital advice platforms are making financial planning tools and wealth management capabilities previously limited to higher net worth households available to a much broader segment of households. New platforms for lending are developing business models that take advantage of new types of data and credit analysis, potentially serving consumer and small business borrower segments that may not otherwise have access to credit through traditional underwriting approaches. Unbanked or underbanked populations can gain improved access to banking services through new mobile device-based banking applications.1. Executive Summary * Nonbank Financials, Fintech, and Innovation * Emerging Trends in Financial Intermediation * Summary of Issues and Recommendations * 2. Embracing Digitization, Data, and Technology * Digitization * Consumer Financial Data * The Potential of Scale * 3. Aligning the Regulatory Framework to Promote Innovation * Challenges with State and Federal Regulatory Frameworks * Modernizing Regulatory Frameworks for National Activities * 4. Updating Activity-Specific Regulations * Lending and Servicing * Payments * Wealth Management and Digital Financial Planning * 5. Enabling the Policy Environment * Agile and Effective Regulation for a 21st Century Economy * International Approaches and Considerations * Appendices * Appendix A: Participants in the Executive Order Engagement Process * Appendix B: Table of Recommendations * Appendix C: Additional Background


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This important report was issued by the Treasury Department in 2018. Nonbank financial firms play important roles in providing financial services to U.S. consumers and businesses by providing credit to the economy across a wide range of retail and commercial asset classes. Nonbanks are well integrated into the U.S. payments system and play key roles such as facilitating ba This important report was issued by the Treasury Department in 2018. Nonbank financial firms play important roles in providing financial services to U.S. consumers and businesses by providing credit to the economy across a wide range of retail and commercial asset classes. Nonbanks are well integrated into the U.S. payments system and play key roles such as facilitating back-end check processing; enabling card issuance, processing, and network activities; and providing customer-facing digital payments software. Nonbank financial firms also play important roles in capital markets and in providing financial advice and execution services to retail investors, among a range of other services.The financial crisis altered the environment in which banks and nonbanks compete to provide financial services. Specifically, many traditional financial companies such as banks, credit unions, and insurance companies experienced significant distress during the crisis. This distress caused the insolvency or restructuring of many existing financial companies, particularly those with volatile funding sources and concentrated balance sheets. The government responded to this distress, and the unprecedented magnitude of taxpayer support it triggered, by writing far-reaching laws that mandated the adoption of hundreds of new regulations. In some cases, these policy changes made certain product segments unprofitable for banks, thereby driving activity outside of the banking sector and creating opportunities for emerging nonbank financial firms to address unmet market demands.In addition to other benefits, innovations in financial technology expand access to services for underserved individuals or small businesses and improve the ease of use, speed, and cost of such services. Businesses providing financial services benefit from opportunities to improve their product offerings to win market share and reduce per-customer operational costs.Expanded access to credit and financial services. Digital advice platforms are making financial planning tools and wealth management capabilities previously limited to higher net worth households available to a much broader segment of households. New platforms for lending are developing business models that take advantage of new types of data and credit analysis, potentially serving consumer and small business borrower segments that may not otherwise have access to credit through traditional underwriting approaches. Unbanked or underbanked populations can gain improved access to banking services through new mobile device-based banking applications.1. Executive Summary * Nonbank Financials, Fintech, and Innovation * Emerging Trends in Financial Intermediation * Summary of Issues and Recommendations * 2. Embracing Digitization, Data, and Technology * Digitization * Consumer Financial Data * The Potential of Scale * 3. Aligning the Regulatory Framework to Promote Innovation * Challenges with State and Federal Regulatory Frameworks * Modernizing Regulatory Frameworks for National Activities * 4. Updating Activity-Specific Regulations * Lending and Servicing * Payments * Wealth Management and Digital Financial Planning * 5. Enabling the Policy Environment * Agile and Effective Regulation for a 21st Century Economy * International Approaches and Considerations * Appendices * Appendix A: Participants in the Executive Order Engagement Process * Appendix B: Table of Recommendations * Appendix C: Additional Background

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