What do we need to ‘push’ innovation in finance (fintech) to the next level?

Digital Finance Strategy with its plans and considerations might create more space for more resilient, efficient and competitive fintechs if ‘executed’ reasonable. Plans are ambitious and at least medium-term oriented and will require not only legislative initiatives but active participation of the market in consultations and workshops. At the end we would like to have what we need; not what Commission thinks we need (not saying EC is not right). Pick a random document like action plan or strategy and you will see that the biggest focus is on ideas to remove regulatory burden that might apply to entrants to the market and some kind of ‘competition balance’). Is it really the most important factor for boosting innovation?

Doubt. I see a list of ‘pain points’ that are usually slowing down fintechs (banks as well) in their run for customers. Those pain points are:

1.    Insufficient passporting regime (not only within EU but broadly).

2.    Expensive, time-consuming and burdensome licensing process.

3.    Lack of translations of legal and regulatory documents.

4.    Relatively low level of harmonization of law (globally – I know it might be utopian).

5.    No cross-border framework for payments (hopefully on-going).

6.    Different interest and expectations of the market and regulators.

Cool, we have a list, and you can easily add more (AML, data protection, data and RegTech/SupTech issues). Some of them will be fully or partially removed in upcoming months and years but does it mean we will have a well-functioning environment for innovative finance with good margins, profit and customers’ satisfaction?

I don’t think so. Why? Because we talk too much about regulation (this could be done with dialogue and openness). I propose an ‘alternative’ (or supplementary) list that could be used not only by regulators but also market to speed-up process of globalization of innovative finance and to create a friendly and competitive space for fintechs and incumbents. Maybe you can add some? 

This list is also not exhaustive as our world is changing rapidly and customer is more ‘agile’ and demanding that he or she was 10 years ago. Therefore, it is important to keep pace and be flexible to be sure that you will not miss a great opportunity or even lost in this game. So, what we have here? Remember one thing – each jurisdiction (country) is different, and it might be difficult to have a solution that ‘fits-all’. But why not trying?

1.    Education – we can create most sophisticated and user-friendly product or service but without knowledge about possibilities, security and benefits we may be left with this product or service alone; this is why we have to educate – not only to fulfill our mission but also to create demand.

2.    Space for testing – a place (sandbox?) where you can test your product or service not only within one country but globally as we should think about our world as a world open for all; this might a difficult task as one of the examples lead by FCA shown due to lack of ‘standarization’.

3.    And this is next point – if we want fintech to be a global trend we should seek some kind of harmonization or at least standardization of rules that apply to innovative finance; imagine creating a truly global fintech in months not years or decades; such standardization applies not only to “fintech-specific’ regulation but also AML/CFT or data protection.

4.    More and more dialogue – market with market and market with regulators; if we get fragmented and ‘stigmatize’ specific areas or business we will get lost; we have to accept that world will not be the same again and accept the fact that ‘strangers’ may come to the market and find place for product or service.

5.    International cooperation and coordination – we think about globalization this should be first step; data sharing and effective dialogue between regulators and governments are essential for global fintech hub; this will be also crucial if we want to convince customers that product from Asia will be safe as this from EU; difficult – yet not impossible.

I will stop here with 5 key points. I know they are rather general and might be utopian but not trying is the worst option. It might take years to get even 20% of the list but it will also be a success. We should avoid regionalization od fragmentation and try to unite and create truly global fintech environment. 

All opinions expressed here are solely mine and should not be treated as those of the institutions I am associated to.