A Fintech Paradigm

The changing face of financial services

Fintech is a relatively new concept that encompasses a whole variety of businesses also beneath the broader umbrella of financial services. The term generally incorporates any use of technology to disrupt the established method of offering financial services to customers.

Examples of Fintech applications range from money transfer and payment providers such as online foreign exchange or mobile phone payment technology, through to car insurance using telematics to monitor driving and tailor premiums accordingly.

Adoption of Fintech is increasing exponentially right across the globe as products, unbundled from full-service incumbent firms, are offered by wraparound digital platforms that let consumers manage their finances on the go via mobile, disrupting traditional customer relationships.

The 2017 EY Fintech Adoption Index analysed the uptake of Fintech services by global consumers. It found an adoption rate of 33 per cent globally, up from 16 per cent in 2015. Interestingly, adoption was far higher in developing countries (46 per cent on average) than developed economies, since Fintech is able to meet unserved demand, not yet filled by traditional services.

The Index clearly shows this figure is driven by China and India, where adoption rates are as high as 69 per cent and 52 per cent respectively. A good example of this is IndiaStack, a company that facilitates cashless payments in India, where millions of people still do not have access to debit or credit cards.

In developed markets, the challenges for Fintech are different since most of the population are already served by traditional providers. Here the aim is to stimulate economic growth by improving efficiency and providing better services to consumers. The countries that have done this well have adopted positive, light-touch regulation and encouraged the growth, funding and development of Fintech start-ups.

In the UK, where Fintech adoption is at 42 per cent according to the EY survey, the Financial Conduct Authority (FCA) has adopted a ‘we are here to help’ philosophy, encouraging dialogue on regulation. The same is true for Hong Kong, where an adoption rate of 33 per cent and proximity to China has persuaded the Hong Kong Monetary Authority (HKMA) to adopt an innovative approach to development, such as its Fintech Supervisory Sandbox (FSS).

In Luxembourg, there is a public-private initiative called the Luxembourg House of Financial Technology (LHoFT) which is active both domestically and internationally to develop the country’s Fintech ecosystem. The country’s well-developed funds industry is a major driver of this, creating high levels of cooperation between government and industry bodies.

During 2018, as well as the existing Fintech companies, we are starting to see a new wave of businesses commercialising cutting edge technology for forward-thinking consumers. As the whole Fintech space becomes more mature and congested, new subsectors are forming such as Insurtech, Wealthtech, Fundtech and Regtech, addressing specific opportunities within the financial services sector.

Cryptocurrency providers and the fundraising mechanisms known as ICOs are receiving much press at the moment and are a good example of the tension between traditional structures and new Fintech concepts with high consumer demand that are struggling to grow within the existing paradigm. Other examples include blockchain technology, robotics and artificial intelligence.

New uses for these innovative technologies are being discovered at a rapid pace as capability develops and the required digital infrastructure improves. The challenge for all jurisdictions is to keep pace with those developments, providing a fertile environment for growth, while still managing risk appropriately for consumers.

Innovations such as Fintech Bridges between jurisdictions (as seen in between the UK and Australia) and Switzerland’s Crypto Valley Association, allow ideas to be shared and technology developed in an open, progressive environment. This makes it more likely that a feasible solution will be found that allows Fintech innovation to thrive when it is ready and safe to bring to market.

The following discussion involves Fintech legal and financial experts from 10 different jurisdictions around the world, in both developed and developing economies. They will provide an insight into the Fintech ecosystems in their own jurisdictions, discussing the ways in which Fintech has been encouraged and barriers to growth managed, while also detailing the most promising innovations they have seen.

They will also discuss regulation, touching on methods used by respective regulatory bodies to encourage Fintech, while honouring their responsibility to protect consumers.