Fintech still has a long way to go
By Sharmila Ganapathy-Wallace April 4, 2017
- Fintech is vulnerable to cybercrime, money laundering and other risks
- Startups can’t enter this space without a broad understanding of rules, regulations
THERE has been a lot of hype about fintech in recent years, including the buzz that fintech may render banks and other financial institutions obsolete one day. The day however, has yet to come and experts believe fintech has a long way to go before that happens.
Issues affecting the fintech landscape were discussed during ‘Fintech: The Inevitable Force’, a panel discussion comprising fintech entrepreneurs and bankers, recently organised by the Global Entrepreneurship Movement (GEM).
Bank Negara Malaysia (BNM)’s chairman of its financial technology enabler group Aznan Abdul Aziz (pic, right) highlighted that fintech is a specialised area, and that startups can’t enter this space without having a broad understanding of rules and regulations.
“One of the issues fintech firms have is that they don’t know which regulator to engage with. We have a regulatory bootcamp for fintech companies to create awareness among fintech companies of the regulatory landscape of the financial sector, including privacy issues, money laundering, etc.,” he shared.
Aznan added that BNM has the Financial Technology Regulatory Sandbox to enable fintech companies to test solutions in a live environment with a period of up to 12 months. “It is an option if you have a product or service to test before commercialisation. We can advise on your business model and how to tweak it to match laws,” he explained.
World Bank Group lead financial sector specialist Jose de Luna Martinez, believes that fintech poses challenges and opportunities. “Fintech is important because there are people around the world that do not have access to basic financial services. There are still two billion people worldwide that do not have a bank account. Around the world, more than 60% of SMEs cannot get credit. Fintech can help close the gaps,” he said.
However, he also noted that fintech is also vulnerable to cybercrime, money laundering and other risks, having seen fraudulence in Asian countries such as Thailand, Bangladesh and India.
“Regulations need to be adjusted to incorporate fintech. Fintech may create over-indebtness, depositor and investor risk. If not sufficiently regulated or monitored, it can impact cyber-security or give rise to fraud,” he added.
Asked to comment on regulatory sandboxes and if regulators are doing enough to support fintech, he noted that regulators need to protect the soundness of the financial system and consumers. “If regulations are too stringent, it will discourage innovation. Sandboxes are a good response, so far they have been successful. But I still see a lot of challenges, because the fintech industry will continue to grow and will need more than just a regulatory sandbox.
“Consumers are demanding and want to have access to products irrespective of location, they want to live in a global world. The regulatory environment will continue to recognise the need of new players and new services.”
Advice for fintech entrepreneurs
Jirnexu Sdn Bhd co-founder and chief executive officer Yuen Tuck Siew, also a panellist at the event, had some advice for his fellow fintech entrepreneurs. (For the uninitiated, Jirnexu owns financial comparison site RinggitPlus.)
“How do you (a startup) make a dent with a bank or insurance company? If you don’t they won’t want to work with you. Even if you can get through the compliance hurdle, this remains a challenge even for us,” he shared.
When asked for his view on working with banks and advice to banks to move a little faster, he replied: “If you want to distribute a financial services product and want to use technology, don’t be surprised if it takes a few years. Don’t think that will change anytime soon. What we’ve seen, is you need a precedent set, then it will be a lot easier for other banks to follow.”
Mark Smalley, founder and CEO of Neuroware, a fintech startup utilising blockchain technology, noted: “Fintech is a highly-regulated market, startups get preached about lean methodologies and moving quick and this doesn’t sit well with fintech necessarily.”
The panel speakers were also asked for their thoughts on the reliability of the infrastructure provided by fintech companies. The World Bank’s Martinez noted that when people start to put their money in a financial institution, they expect it to be safe and secure.
“They expect the same of a fintech company. So if the provider is not able to guarantee that the information of the client will not be compromised, there are a lot of concerns concerning the technology- regulators need to set standards so that the fintech companies meet similar standards in place for financial institutions.”
Neuroware’s Smalley commented that for reliability from a blockchain viewpoint, at the protocol level there has not been a hack of any kind in nine years. “It’s the most reliable technology I have had the opportunity to deal with.”
Jirnexu’s Yuen said: “A lot of startups fail, when you provide to banks or insurance company, you cannot fail. If you fail one bank, every other institution is going to find out. Look after your reputation; it’s more valuable in financial services than in any other industry.”