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EY fintech survey says regulation contributing to growth

Chris Hamblin, Editor, London, 7 July 2017

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Consumers are drawn to financial IT because it makes things simpler, more convenient, easier to inspect and more adjustable to their needs. This has a ripple effect across the industry as they come to expect these characteristics in all financial products. Regulators have aided the take-up of 'fintech' in many ways also.

The accountancy firm of EY has produced its "FinTech Adoption Index 2017," actually more of a report, which makes some comments about the influence of regulation on the take-up of fintech products. In the last two years, regulators have been assessing new business models and software packages for which they have never previously needed to make special provision, setting up such steering groups and 'sandboxes,' updating licensing regulations and making infrastructural changes to facilitate open Application Programming Interfaces. It believes that regulatory support will continue to play a part in stabilising the development of the fintech industry, which will benefit consumers.

It adds: "In some markets, new regulation creates opportunities for new FinTech firms and services, such as the Payment Service Directives (PSD and PSD2) across the Eurozone, which triggered Open Banking, and the launch of new 'payments banks' licenses in India, which introduced greater competition. In other markets, such as China, open regulations allow both FinTech and non-financial services firms to innovate how financial services products are offered, which enables their mobile leadership."

EY's findings suggest that fintech firms are establishing themselves as significant providers of financial service products, with the greatest traction in banking but also increasingly in insurance and wealth management. The emerging 'wealthtech' market is less mature than money transfer and payments and has yet to reach the tipping point of global mass adoption, but is nonetheless growing fast along with 'insurtech' and (a word that popped up in the popular consciousness only last year) 'regtech.' Fintech is growing in all parts of the world.

For its report, EY considerered fintech services in five broad categories: money transfer and payments, financial planning, savings and investments, borrowing and insurance. Of these, money transfer and payments are at the forefront of (EY says 'driving') the adoption of the software, with 50% of its digitally active consumers having used this type of service in the last six months. EY attributes some of this to an increase in activity on the part of regulators in some markets that support financial technology, especially in money transfer and payments but also in insurance services.

The UK seems to garner the most praise for forward-thinking regulation in this area. Even before EY's first so-called 'index' in 2015, the Financial Conduct Authority had already set up Project Innovate, which has since inspired similar initiatives in other markets. EY goes as far as to say that fintech firms view new regulations not as an unwanted burden but as an acknowledgement of their legitimacy by the ultimate authorities. It does not explain why they were worried about being legitimate in the first place.

The report contains some anecdotal evidence that regulation is perhaps slightly irrelevant to the take-up of fintech services. David Vélez, the founder and CEO of Nubank (estd 2013) is quoted as saying: "As the first digital and branchless credit card company in Brazil, we attract customers who prefer mobile interfaces to manage their finances. Users have a round-the-clock customer experience team via chat, email and phone, as well as Twitter and Facebook. They use the app to manage their cards, pay bills and review transactions in real time. When I came to Brazil, all I heard was that I couldn’t start this type of business here, the big banks wouldn’t allow it and the regulation was too complicated. Thirty different market specialists all said 'forget it, you are a foreigner and you just don’t understand.' We built Nubank despite all conventional wisdom, in the midst of Brazil’s worst economic crisis. Today, more than nine million people have applied for a Nubank card."

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