Fintech's Beneficiaries: Two Approaches to Regulation
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26 January 2017James O'Neill
British Prime Minister Theresa May visits the United States this afternoon to address a gathering of Republican lawmakers in Philadelphia, followed by a visit to the White House tomorrow. Tomorrow's meeting is noteworthy, as Prime Minister May will be the first foreign leader to meet with President Trump since the latter's inauguration only last week. The timing is also interesting, as only two weeks ago outgoing President Obama's National Economic Council (NEC) released a new whitepaper called A Framework for FinTech. The NEC, a policy advisory unit of the White House established in 1993, proposed 10 high-level principles designed to move the US fintech industry forward. The FinTech whitepaper resulted from the White House's FinTech Summit in June, 2016 that brought together a wide range of bankers, policy makers, and other interested parties, and subtext of the whitepaper was that cooperation between all stakeholders would yield greater innovation in financial services, as summed up below..
"[A] policy strategy that helps advance fintech and the broader financial services sector, achieve policy objectives where financial services play an integral role, and maintain a robust competitive advantage in the technology and financial services sectors [will] promote broad-based economic growth at home and abroad."Innovation in financial services has been on the agenda of the British government dating back to 2002, when the UK Competition Commission concluded that lowering the barriers to entry in the provision of financial services to small and medium-sized enterprises (SMEs) for competitors would improve service and lower prices paid by SMEs. The 2002 report spurred on additional studies by various UK regulators regarding the impact of industry consolidation in banking on the outcomes for retail and SME customers. Fast-forward to February of 2016, when HM Treasury published a report of the Open Banking Working Group (OBWG) that essentially mandated many of the recommendations made by the 2014 Fingleton Report that talked about use cases and potential benefits of open APIs to drive innovation in banking and expand competition. A blog entry by my colleague Patty Hines represents an excellent summary of this report. So while both the US and the UK governments promote innovation and growth in fintech, they come at it at a slightly different angle, as is seen in the August, 2016 follow-on report of the UK's Competition and Market's Authority (the successor regulator to the Competition Commission).
"[O]lder and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow. This means that many people are paying more than they should and are not benefiting from new services."Even as this statement hints at subtle differences in policy goals, thankfully there's no need to take one side or the other, as ultimately innovation in financial services can achieve both goals. Whether creating customer advantage is a stated goal or merely a collateral benefit of fintech, the movement towards opening up the banking system through more accessible APIs will ultimately benefit not only the consumer, but the financial institutions themselves. Clearly, banks need to continually work on sharpening their game in the use of emerging technologies in order to maintain their competitiveness, but for the moment the dance floor remains open for those who choose to embrace innovation rather than fear the change that is to come.