Fintech: the emerging keyword of the 21st century. The term combines the words 'financial' and 'technology' and stands for the technological innovation in the financial services sector that has been under development in recent decades. This evolution can be seen daily when we use mobile applications to transfer money, make and accept payments, or when banks resort to robo-advisors to create automated investment advice for clients while taking advantage of lower administrative costs.
Fintechs are providing financial markets with increasing business opportunities such as the use of blockchain technology and virtual currencies, the development of an EU integrated market for electronic payments, and the steady growth of alternative financing platforms, such as crowdfunding.
Virtual currencies, which have been, so far, a no man's land, are extremely volatile and prone to substantial market changes in prices and to high liquidity risks. Also, since virtual currencies are not yet regulated under EU law, there are no safeguards against the potential risk of money laundering and/or fraud. Regulation of virtual currencies presents a challenge to law-makers and regulators. It is vital to respect the breakthroughs already achieved in the financing industry and in the way businesses are being conducted, and at the same time make sure that these technologies and processes become fully integrated in the system.
Despite of all the revolutionary aspects of blockchain, in particular virtual currencies, payment fintechs have definitively been taking the lead in Europe when it comes to giving the sector a twist. This is mostly due to the approval of Payment Services Directive II (PSDII) which puts in place comprehensive rules for payment services. This Directive aims to create an integrated market in the EU and to make international payments within the EU easier, more efficient and secure. This is an important milestone for fintech since it allows providers of innovative payment services to effectively compete for the creation of new and more efficient solutions, which naturally affects the way banks and payment card companies have been operating. With the mandatory opening of banks' application programming interfaces (APIs), as a consequence of the implementation of third party access (TPA) requirements, not only banks but also credit card companies will have to resort to third parties (fintech companies) to broaden and improve the scope and level of their services, create new business models and defend their revenues.
Fintechs and the new business models that are reshaping this ecosystem present new challenges in terms of cybersecurity concerns, the need to adopt a different approach in the way financial services are traditionally delivered to clients, and the implementation of stricter compliance rules. As a result of that, the consolidation of complex new requirements and processes into daily business naturally implies a committed effort in terms of a new approach to consumer protection regulation, including transparency in costs and fraud prevention, but also the need to integrate an increasingly liberalised and more fiercely competitive market with cyber security, anti-money laundering (AML) and data protection regulation.
Ironically, this means that alongside the liberalisation of the sector and the new technological and commercial challenges that all stakeholders must address, now, more than ever, a full understanding of the regulatory environment, with some apparent contradictions, becomes paramount – it is time for compliance to kick in.
|Bruno Azevedo Rodrigues||Sara Carpinteiro|
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