Customer-centricity, simplicity and scalability, cost efficiency, the absence of the need to protect existing business, and lack of regulatory burden along with legacy IT systems/branch networks – these are just some of the reasons FinTech is not a niche anymore, but a powerful force in transforming the financial services industry. Combining venture and M&A investment, FinTech deal value in Q1 2017 hit $3.2 billion, not a steep drop from the $4.15 billion registered in Q4 2016.
The potential of this industry, however, cannot be fully understood and leveraged while contained in national borders. In 2017, FinTech became impactful enough to turn heads among world’s’ watchdogs, whether it’s for never-seen-before speeds of funds accumulation through new instruments or increasing financial threats associated with those instruments for a significant number of individuals around the world.
In any case, it became evident that 8,000+ FinTech startups around the world can no longer operate effectively and productively in uncertain regulatory environments – regulatory uncertainty disproportionately affects first-movers and discourages innovators. To scale the opportunities presented by imaginative entrepreneurs in local markets, international authorities accelerated their efforts to attract and allow easy integration of international teams in foreign markets (Estonia, probably, is one of the most forward-thinking ones in that sense).
One of the first concepts that came into existence to facilitate innovation adoption beyond national borders was the concept of a regulatory sandbox, which increases time-to-market by about a third at a cost of ~8% of product lifetime revenue. More interestingly, estimations from other industries suggest that valuations may be reduced by ~15% due to regulatory uncertainty. By November 2016, nine financial authorities have launched regulatory sandboxes (ADGM, OSC, HKMA, MAS, FCA, and more) to enhance access to capital, curate quality of products reaching national markets, and offer a regulatory relief and assurance of the best solution for the end-user.
Regulatory sandboxes, most importantly, were some of the earliest government-level instruments used by forward-thinking authorities to attract and attain international talent building innovative solutions. Never before there has been such a massive precedent of financial watchdogs considering any regulatory relief for entrance into the most stringently regulated industries globally – the financial services industry.
The impact of FinTech on international policies did not stop on expanding the minds of regulators to the level of running a sandbox – starting 2016, governments started to actively cooperate on international FinTech initiatives. Increasingly,countries are recognizing that international cooperation is crucial to help develop their domestic FinTech market. Asia-Pacific, in particular, has been one of the most active regions where progressive authorities pay close attention and take actions on the deeper exploration of opportunities that FinTech opens in national markets.
|Finance Minister, India||Chancellor of the Exchequer, UK||Jan 19, 2016||Joint statement where India and the UK agree to work together on building commercial and regulator-to-regulator links that can underpin further FinTech growth in both countries.|
|ASIC, Australia||Financial Conduct Authority (FCA), UK||March 23, 2016||Agreement to support innovative businesses, which among other things is intended facilitate referrals and cooperation between their respective markets.|
|MAS, Singapore||UK Financial Conduct Authority (FCA)||May 11, 2016||FinTech bridge which included the signing of a regulatory cooperation agreement, providing a framework for referrals, cooperation and information sharing between their respective markets.|
|Digital Economy Corporation (MDEC), Malaysia||UK Trade & Investment (UKTI),||June 2, 2016||Memorandum of understanding to strengthen partnerships in the ICT sector and to jointly promote the adoption of digital economy solutions, including in relation to FinTech.|
|ASIC, Australia||Singapore, MAS||June 16, 2016||Innovation Functions Co-operation Agreement intended to help innovative businesses to grow and expand into their respective markets.|
|Ministry of Trade & Industry, Singapore||Department of Commerce, United States||Aug 2, 2016||Memorandum of understanding establishing a collaboration platform that will focus on opportunities in the infrastructure sector, including smart city solutions and the digital infrastructure supporting the FinTech sector.|
|MAS, Singapore||Swiss Financial Market Supervisory Authority (FINMA)||Sep 12, 2016||Cooperation agreement to foster greater cooperation and facilitate information sharing on FinTech.|
|ASIC, Australia||Capital Markets Authority of Kenya (CMA), Kenya||Oct 21, 2016||Cooperation agreement aimed at promoting innovation in financial technology services.|
|The government of Andhra Pradesh, India||MAS, Singapore||Oct 22, 2016||Cooperation agreement to promote innovation in financial services in their respective markets.|
|MAS, Singapore||Korean Financial Services Commission (KFSC)||Oct 24, 2016||Cooperation agreement to foster greater cooperation and facilitate information sharing on FinTech.|
|ASIC, Australia||Ontario Securities Commission (OSC), Canada||Nov 2, 2016||Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.|
|PBOC, People’s Republic of China||FCA, UK||Nov 11, 2016||Cooperation agreement aimed at facilitating information sharing and promoting innovation in financial services.|
|HKMA, Hong Kong||FCA, UK||Dec 7, 2016||Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.|
|MAS, Singapore||Abu Dhabi Global Market (ADGM)||March 8, 2017||Cooperation agreement to foster closer cooperation on developments and initiatives that nurture FinTech entrepreneurship and support innovation in financial services in their respective markets.|
|JFSA, Japan||FCA, UK||March 9, 2017||Exchange of letters on FinTech cooperation framework providing for referrals, cooperation and sharing information to promote innovation in their respective markets.|
|JFSA, Japan||MAS, Singapore||March 13, 2017||Cooperation framework providing for referrals, cooperation and sharing information to promote innovation in their respective markets.|
|MAS, Singapore||Autorité de Contrôle Prudentiel et de Résolution (ACPR), Autorité des Marchés Financiers (AMF), France||March 27, 2017||Cooperation agreement to share information about emerging FinTech trends, potential joint innovation projects, and regulatory issues pertaining to innovative financial services.|
|ASIC, Australia||Indonesia, Otoritas Jasa Keuangan (OJK)||April 21, 2017||Cooperation agreement concerning information exchange on innovation in financial services, including technology updates, regulatory development and FinTech innovation hubs.|
|SFC, Hong Kong||FCA, UK||May 12, 2017||Cooperation agreement providing a framework for referrals, cooperation and sharing information to promote innovation in their respective markets.|
|MAS, Singapore||International Finance Corporation (IFC) of the World Bank Group||May 23, 2017||Memorandum of cooperation providing for establishment and development of the ASEAN Financial Innovation Network which aims to facilitate broader regional adoption of FinTech innovation.|
|MAS, Singapore||The Association of Supervisors of Banks of the Americas (ASBA)||June 9, 2017||Memorandum of understanding, which provides a framework for FinTech cooperation between Singapore and ASBA member countries.|
|ASIC, Australia||SFC, Hong Kong||June 13, 2017||Cooperation agreement which provides a framework for cooperation to support and understand financial innovation in each economy.|
By the look of existing partnerships, there is no doubt we will see more collaborative work that will inevitably benefit the governmental structures, the end-user in every corner of the world, and the international massive force of talented entrepreneurs. While Hong Kong, Singapore, and Australia are all in with partnerships, the rest of the world is catching up with a certain future, where collaboration will drive innovation.
Not only does FinTech bring together governments, its unifying force actually first started to show in domestic marketsamong financial institutions and startups. Immense mutual benefits have been a strong incentive for startups and commercial banks to start transforming traditionally rigid industries together – financial services and insurance. Indeed, “…the best way to foster progress is by working as a global and collaborative ecosystem,” emphasized Laura Gaviria Halaby, Global Head of FinTech Acceleration at Citi, in an exclusive interview with the LTP Team.