Fintech can be described as the new technology that seeks to enhance and automate the delivery and use of financial services. Through fintech, businesses, startups, tech companies and consumers can manage their financial operations and processes using specialized technology that is mainly used on computers and smartphones. Nowadays fintech can be used to describe a variety of financial services, such as money transfers, depositing checks without the need to physically visit a bank branch and in general without the assistance of a person.
While in the initial version of FinTech (Fintech 1.0), companies started by offering services in peer-to-peer lending and payments, startup disruptors went a step further and focused on more innovative technologies like mobile payments, automated investing, retail banking and insurance specifically in the business-to-consumer (B2C) space.
On March 2017, the European Commission launched a public consultation on Fintech seeking feedback on how to create “a more competitive and innovative European financial sector” that represented an important step towards a European Policy and regulatory framework for FinTech.
Further to the above, on September 2017, the Commission, conducted a public consultation on FinTech, in an attempt to grasp stakeholders’ input on methods of technological innovation. As it was illustrated in the summary of contributions, respondents expressed their broad support for an EU framework towards technological innovation in financial services.
The Commission’s Task Force on FinTech adopted an action plan in March 2018, that will help preserve the financial stability and ensure consumer protection, with the following aims:
- Enable innovative business models to scale up at EU level
- Support the uptake of new technologies such as blockchain, artificial intelligence and cloud services in the financial sector and,
- Increase cybersecurity and the integrity of the financial system
In June 2018, a group, known as the Expert Group on Regulatory Obstacles to Financial Innovation, was set up by the EC to review the application and suitability of the legal and regulatory framework in the field of fintech. The expert group focused on the following areas:
- Responding to new risks caused by the use of innovative technologies such as AI and distributed ledger technology
- Removing fragmentation across the EU and ensure a level playing field between different participants in the financial services sector as they leverage new technologies
- Reconciling data protection with the opportunities offered by fintech
- Considering the potential impact of fintech on consumers, from the perspective of financial inclusion and the ethical use of data
In addition, the report stressed the need for technological neutrality in pursuing the abovementioned aims.
The launch of European joint platform for EU sandboxes and innovation hubs did not come earlier than April 2019. EFIF (European Forum for Innovation Facilitators) aims to foster collaboration and experience sharing among European financial supervisors on their engagement with FinTech firms through sandboxes and innovation hubs.
European Commission is currently exploring how the financial sector can benefit from these developments, while remaining safe for consumers and investors.
It is suggested that FinTech disruptors will not stop here but they will continue to expand in other practices like credit underwriting, digital cash, robo-advice, wealth management and tech innovations like blockchain. This disruption in financial services will unleash a great potential even for existing traditional institutions as this will lead to lower costs, more innovation and greater access for all.
The need for better, more efficient, personalized and more affordable, but equal level services, alongside the challenge for banks to continuously improve their services and create new innovative products are the main drivers of change for businesses adopting the FinTech mindset.