U.S. Government Accountability Office Issues Long-Awaited Report on Fintech Industry

By Judith Rinearson and Eric A. Love

The U.S. GAO has issued a long-awaited report on the fintech industry, which focuses on the regulation of marketplace lenders, mobile payments, digital wealth management platforms and distributed ledger technology (“DLT” – often referred to as blockchain). For each of these fintech industry “subsectors,” the GAO report details the nature of the subsector and how it operates, as well as its potential benefits and risks.  Moreover, the GAO report addresses industry trends, regulation and oversight for each subsector.

Marketplace lenders.  The GAO report indicates that marketplace lenders may provide expanded and quick access to credit at lower cost than banks, although the report also notes risks related to loan term transparency and certain protections for small business borrowers.  

Mobile Payments.  The GAO report states that mobile wallets can allow consumers to conveniently and efficiently conduct financial transactions, but the report also indicates that mobile payment methods can pose certain data security risks, as well as “operational risk for human error.”

Digital wealth management platforms. The GAO report found that digital wealth management platforms may provide investors a convenient, low-cost way to invest.  The report also notes risks concerning the impact of insufficient or incomplete data from investors on their portfolio goals.

DLT.  The GAO report indicates that DLT may foster transparency and efficiency in the marketplace, although the report also describes potential operational and security risks.

According to the GAO report, further development of DLT will be necessary to understand how it will be regulated under current laws and regulations. For all other subsectors, the GAO report indicates that state and/or federal regulation generally depends on the nature of the business model and services provided.  The report does not make any recommendations about regulation, and is the first in a series of expected GAO reports about the fintech industry.  Further blog posts will be posted as additional reports are issued.

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