FinTech regulation trends

Through the formative years of the FinTech industry, it’s been difficult for start-up players to enjoy the same market reach and penetration as traditional financial institutions.

This has mainly been due to legislation and regulations that are designed primarily with big established firms in mind, rather than smaller ones looking at new ways of doing business. It also hasn’t helped that FinTech and its associated technologies have grown so fast that regulators haven’t reacted quickly enough to keep track of progress and adjust the industry landscape.

At first glance, this makes the future of the FinTech industry sound quite pessimistic… when in reality, nothing could be further from the truth.

The good news is that around the world, more and more governments and legislators are looking favourably on new financial technologies. Several countries are now starting to make moves towards either relaxing FinTech regulations, or creating structures and procedures that make it easier for FinTech firms to prosper.

For example, the Australian government has recently published proposals that would allow FinTech companies to operate without needing a full licence like normal banks, pointing to positive recognition of FinTech’s ability to bring new innovations and flexibility to consumers. Treasurer Scott Morrison was quoted as saying that the legislation would help firms “overcome the initial regulatory burden and costs of licensing that may otherwise hinder innovative offerings.”

Meanwhile, other markets are already actively embracing the abilities for FinTech firms to enhance their business ecosystems. Hong Kong and Singapore have opened up ‘sandbox’ environments, where firms can test out new innovations under the watchful eye of local regulators, thereby removing any risk of untested, unsuitable solutions causing harm to people’s finances or the wider economy.

All this means it’s fair to say that the world at large is preparing for a global financial future where FinTech has a big part to play. But what are the consequences from the perspective of FinTech companies themselves?

There are three major trends and developments that could emerge in the coming months and years, all of which would be advantageous towards FinTechs:

Big firms want in – but it isn’t as simple as that: with relatively relaxed regulatory environments on offer, it’s only natural that big banks have started to turn their attention towards new technologies, using that freedom to open new revenue streams. But they might not get things all their own way.

When new technology is unleashed on in a particular industry, it’s often the case that the established leaders tend to try and assimilate the new kids on the block in order to protect their dominance. But in the case of FinTech, there are two barriers standing in the way of them exercising their dominant market positions.

The first is that FinTech firms are sprouting up all over the place and there are too many for the established players to ‘control’. Perhaps more importantly, however, the second is that the big banks’ ingrained attitudes and practices may, in many cases, make them incompatible with the FinTech world anyway.

As James Bullard, president of the Federal Reserve Bank of St. Louis, said in a recent interview: “Are these really the institutions that are going to be able to innovate quickly or are they just big bureaucracies that are going to be too slow to run this kind of stuff?”

FinTechs can inspire greater confidence and credibility: being able to say that a particular business or solution is fully compliant with relevant regulations can be a huge step forward for FinTechs.

It’s previously been difficult for some innovators to convince potential customers, clients and investors that they’re the real deal, and that they can be trusted with those stakeholders’ hard-earned cash. That applies for everything from customers’ personal banking funds to capital from investors looking for an eventual return.

This is especially important as firms grow and the amounts of money and investment involved get larger. The greater the sum, the more security measures and safeguards those stakeholders will expect – an area where regulatory certification can help add some gravitas.

Regulations can be a FinTech business opportunity: these changes can provide a creative spark to help FinTech firms look at the whole area of regulation in a new way – and see a potentially huge value proposition. Instead of creating or adjusting solutions to meet regulations, or to deal with the consequences of them, why not develop new regulation-focused solutions specifically to help other companies or end-users adjust and comply faster and more efficiently?

For example, the upcoming standardisation of electronic invoicing within the European Union means businesses will be on the lookout for solutions that can help them produce compliant invoices. This is where FinTech companies can step in, delivering new clients the innovation they need before the EU directive comes into force.


So what does this mean from a providing organisation’s perspective?

Regulation normally sounds ominous for any company, but far from being an inhibitor to growth, the future is looking bright for FinTech firms. There has never been a better opportunity for FinTech innovators to develop advanced, compliant solutions that can disrupt the marketplace and challenge the established banking infrastructure.

So as an independent software vendor, service provider or system integrator, this means now is the time to take advantage by giving your clients all the services and innovation they need to exploit a marketplace that’s increasingly set to work in their favour.

If you can do so, then the success of your FinTech clients will make your business successful, too.

You can enhance the value of your existing clients’ FinTech solutions, and reach new clients and markets, when you partner with IBM. 

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