FinTech Talk - April 5, 2016
The hot news in Fintech this week is Money20/20, the world’s largest Fintech event, which runs from April 4 – 7th, 2016.
This year’s event, held in Europe (Copenhagen) for the first time, has attracted over 3,000 attendees and 400 speakers, and covers a range of topics, including the future of payments, blockchain, challenger banks and many more…the list is endless (well almost).
That said, here are a few things that we’ve learnt from Money20/20 so far:
- Europe’s second most valuable fintech business, Swedish e-commerce business, Klarna, now has 45m customers and 1,600 employees across Europe and the U.S., but insists it has no plans to IPO. Speaking on the main stage, co-founder and CEO Sebastian Semiatkowski said that the company was already profitable and a market leader in the Nordics, and that there was little financial incentive to go public.
- Amazon is diving deeper into payments and used the conference to unveil its new e-commerce partner programme. The move means merchants can embed Amazon Payments tools into their sites to enable customers to pay using their Amazon credentials.
- Prosek’s very own client, Silicon Valley Bank (SVB), was also at the event and, in an interview with PaymentEye, emphasised that the pace of new company formations was still on track, with VCs continuing to invest in great start-ups and more developed companies. Reetika Grewal, Head of Payments Strategy and Solutions at Silicon Valley Bank, also discussed the importance of company culture in start-ups and banks’ responses to start-up culture.
Another hot topic in fintech this week – and every week for that matter – is regulation. Last month, Mark Carney, Chairman of the G20 Financial Stability Board (FSB), informed G20 finance ministers that the FSB would begin evaluating the risks posed by fintech to global financial stability. To follow up, last week, the FSB proposed a framework for categorising major areas of fintech and evaluating each area's potential risks to consumers, public authorities, and financial stability.
The extent to which regulators can no longer ignore the fintech industry is clear if we look at Citi Group’s recent report states that a third of bank workers could lose their jobs, with traditional financial services firms expected to lose up to 20% of their business. Given the predicted effect that fintech will have on the financial services sector, it is no surprise then that the FSB will engage with global regulators to get a better understanding of the industry and different regulatory approaches.
An overarching, global regulatory approach could be bad for fintech companies - fintech categories that are classed as high risk could be subject to heavier regulation, with nuances in business models being overlooked, leading to some areas being stifled globally, while others flourish.
To further complicate matter, the U.S. has its own financial regulation system and has no coherent regulatory policy on fintech, with different financial regulation at state and federal (national) levels. This makes it hard for fintechs to know if they are operating within the law, and inhibits partnerships with traditional financial institutions. Last week a federal regulator, the Office of the Comptroller of the Currency (OCC), issued eight guiding principles for developing a framework designed to help simplify the situation.
This framework looks good for fintech companies in the U.S. for three reasons:
- Communication channels between fintechs and regulators are vital to developing supportive regulation and enable regulators to understand the nuances of differing fintech business models and take them into account when regulating.
- Clarification of requirements would benefit fintech companies and incumbents and would make both groups more likely to partner, allowing the former to benefit from banks' scale and resources, and banks to access technology without resorting to acquisition.
- Collaboration across state, federal and international regulatory bodies is key to promoting consistency and will ensure the regulatory burden on firms wanting to innovate isn't onerous and is applied consistently.