The fintech industry spent the entire decade trying to differentiate itself from traditional financial institutions in the eyes of the consumers.
From the look of things, not only has the industry succeeded in distinguishing itself from the regular banking institutions, but also in grabbing a part of the market
Nearly 90% of traditional financial institutions believe that they lose at least a part of their business due to independent fintech companies in the next 5 years.
All of this has led many people to wonder about the safety and regulation in the fintech industry. With valuable input from fintech startup TechToPay, that’s what we’re about to discuss today.
Blurring the Lines Between Finance and Fintech Industry
Unconstricted by the regular rules of the financial industry, fintech companies have the opportunity to dictate market trends and create long-lasting relationships with customers.
Naturally, this has created a lot of disruption in the industry. Fintechs have what banks have and vice versa. One has innovative technology, the other has experience and stability.
Because of this, we can expect:
- More fintechs pursuing bank chapters and pursuing traditional customers
- Banks working with fintechs to meet the demands of new customers
- Various governments around the world establishing new regulatory requirements
How Growth Affects the Fintech Market
The fintech market is already big. However, during the next decade, we can expect it to grow substantially. As a matter of fact, over the next 5 years, the market is expected to grow at a compound annual rate of almost 23% and reach $305 billion.
With more customers, revenue, and attention drawn to it, the market will need to be regulated more to protect both the customers and businesses operating in it. Countries have already started taking regulatory actions.
These actions all share a few specific traits:
- They apply to fintech organizations of all sizes
- All of them are new and have been made after 2015
- They mainly highlight risks that threaten traditional banks
Some of the more recent regulatory actions have addressed the treatment of customers. That suggests that new customers want a high level of security when dealing with bank-like, fintech services that are delivered through less traditional channels.
The History Regulations in the Fintech Industry
As stated above, regulatory actions concerning the fintech industry have only been taken in the last five years. In 2016, the OCC published a crucial paper that outlined its vision for the so-called “responsible innovation” of the banking system.
The OCC initiative opened the door for fintech organizations to collaborate with regulatory bodies and work on solutions that will benefit them and the customers.
More than a year later, the acting Comptroller of the Currency, Keith Noreika openly supported the responsible innovation initiative. The same week, Varo Money, a mobile-based fintech company applied for a full bank charter in the United States.
That marked the first time a fintech company made a move toward a traditional charter. Numerous companies followed suit.
The Future of Fintech Industry Regulations
Technology is developing faster and faster. So much so, that most regulatory bodies aren’t able to keep up with. It. New technologies like machine learning, cloud computing, and blockchain all have to be accepted by lawmakers and regulators across the globe.
Only a handful of countries have been able to put legitimate regulations in place that won’t negatively affect the growth of the fintech industry. Overall, fintech regulations are changing constantly. Here are a few factors that might affect global regulations shortly:
1. VASP Joins FATF
In 2019, the FATF published new guidance that included the definitions of both virtual assets and virtual asset service providers. Around the glove, local financial intelligence units have had their FATF definitions updated this June. Combined with the updates of custodial and payment regulations, all of the virtual asset service providers that implement the compliance into their platforms could potentially earn millions of dollars.
2. Digital Reporting
Some companies, especially the ones without a lot of experience in the market, often underestimate the financial burden of new regulations. Whether it’s filling registration forms, reporting suspicious activities, or simply managing customers, regulatory reports aren’t simple or cheap when done manually. However, regulators, – like the Canadian FinTRAC – have launched digital reporting platforms that will make things a lot easier for fintechs.
3. Compliance in Communications
Fintech companies aren’t the only ones evolving. Regulators themselves constantly work on updating their toolkits. This allows them to supervise their local markets more closely and, most importantly, remotely. Recently, regulators like MAS in Singapore have been actively targeting businesses that offer digital services, without maintaining licences in their local area or reporting.
The Importance of Financial Advising
Since the regulations are always changing, firms looking to work with fintechs need to find the ones that don’t only comply with current regulations but that know about the upcoming rules.
Those looking for a payment gateway that will help them connect with customers, make the process easier, and everything secure need to know about TechToPay. The platform allows merchants to use a wide variety of payment methods and banking networks safely.
Moreover, TechToPay is also PSD2 and GDPR compliant, so customers will know that they safely provide the merchant with all of their personal information. TechToPay also has a team of compliance experts that stay on top of all new regulations.
Merchants can rest safely, knowing that their payment processing platform is compliant with all of the latest rules and regulations.
Closing Thoughts
For fintech as a market, the future looks bright. Although the rules and regulations in fintech are always changing, companies that manage to stay on top of them – like the aforementioned TechToPay – will see long term success.
By having risk management controls in place, fintech companies will increase their chances of success. With the right regulations in place, the fintech industry will have the legitimacy it needs to attract consumers, more accustomed to the traditional finance industry and flourishes.
TechToPay Limited (trading as TechToPay) is a company incorporated in England (company number 07993747 ) and authorised by the UK Financial Conduct Authority (FRN 622935) for the provision of payment services.
