Chee Yuen Yew and Ameen Talib
Honors student, Business School. Coventry University, Singapore campus, 6 Raffles Boulevard, marina Square #03-200, Singapore 039594.
Head Applied Projects, Business School, Singapore University of Social Science, 463 Clementi Road, Singapore 599491. E-mail: ameentalib@suss.edu.sg
DOI: http://dx.doi.org/10.31014/aior.1992.01.01.5
ABSTRACT
The world has transformed from traditional business model into digitalised business model, financial services as well. As financial sector is strictly regulated by worldwide regulator in the past, there’s the dilemma on the regulation in the combination of Financial Technology (“Fintech”). This paper has selected three samples of emerging countries in Asia to examine the current regulations development. In the end of the paper, there is a comparison of regulatory framework between the samples of countries in order to have more understanding on how the regulator had been working on the Fintech industry to overcome the uncertainty.
INTRODUCTION
“Banking service is necessary, but not banks.”
Bill gates
The world economy has been transforming from traditional banking to digital ecosystem. Internet based services have become the most powerful distribution channel tools for businesses environment as well as changing of consumer behaviour nowadays. Following with rapid development in technology and application around the world, there are more opportunities created for businesses. There are many empirical studies on how does internet has changed the business environment and customer’s behaviour (Elena-Iulia 2014, Glova, Sabol and Vajda 2014, Muzellec, Ronteau and Lamkin 2015). Majority of world’s retail banks dominating the financial landscape through providing deposit, payment and credit services, however, they are no longer the only players in the industries. In the recent year, there are increasing of alternative finance gains tractions with customers. Nowadays, the financial services required convenience, fast and data collation. Fintech is the combination of “financial” and “technology”. The raising of Fintech companies, who are coming into the industries through internet-based services such as online funding, lending service, online payment systems, asset management as well as new money capabilities e.g. Bitcoin and block chain technology. However, how would financial institutions look into this disruption?
Collaboration or Competition
For decades, traditional banking service are competing with other competitor bank among the industry but the banks have to compete with technology based Fintech companies nowadays. In view of early disruptive Fintech companies around the world such as Alibaba Group & Tencent, Paypal, M-PESA etc., the communities such as government, investors, entrepreneurs and consumers around the world started to grant attention to the Fintech services. The global investment in Fintech companies raised to USD3.2 billion in the first quarter year 2017 across 260 deals (KPMG International Cooperative 2017). Here’s come with the question with collaboration or competition? While the developing countries has lack of chances deal with financial services, the only way to get them into financial inclusion is the infrastructures. There are believes in Fintech solutions could generate more options than banking options for poor infrastructures developing countries such as India and Pakistan (Kendall 2017). On the other hand, McKinsey (2016) also pointed that the offers from Fintech such as low cost driver and innovative uses of data could be a threat to the banks’ revenues.
The collaboration between banks and Fintech companies is better off as banking sector could easier get customer acquisition with collaborate with the advanced technology offering from Fintech companies. There’s no doubt on the traditional financial services are moving into digital era, banks and Fintech companies believe that financial technology is not only able to provide products opportunities growth but also build a new architecture which are faster, efficient and more secured across border to another country. In the report of World Payment Report (2016), the volume of global non-cash transaction have accelerated and growth by 10.1 % which up to USD426.3 billion in year 2015. Therefore, Fintech companies seized the opportunities by reaching their customers more easily and less initiative costs during engaging on mobile technology (Kiem, et al. 2016). Despite Fintech provided an exciting landscape to the community, however, there are challenges on whether Fintech’s products are fail to be trusted, fail to be secured or fail to comply to local regulatory framework.
According to the survey of White & Case Fintech M&A (2016), 59% do not think that Fintech subject to tighter regulations as this may stifle new innovative ideas (Kiem et al., 2016). In order to maintain financial and economy stability, financial sectors are well regulated by worldwide regulator (domestic and international regulator). In the existing regulatory frameworks are not structured and incompetent to supervise the rapid growth in Fintech industries [ Kiem et al. (2016)]. The government’s support is the key growth in Fintech industry which are contributing by the entry barriers, funding, infrastructure and regulatory support. In the US, there is complex regulator and state-level structure to oversee the financial services provider, hence created entry barrier to Fintech companies where UK has more friendly regulation to welcome Fintech start-up (Desai 2015). As Fintech promises to provide better customer experience, the Fintech companies must consider on how to use the regulation for advantage their further growth and development. Therefore, the regulatory have crucial responsibility to ensure the customers are protected. For an instance of international body, New York’s Financial Stability Board (“FSB”) has been requested from national authorities to assess a supervisory and regulation framework on the cyber risk issue of Fintech from financial stability perspective such as concern on the security of customer’s database being available to Fintech third party companies (Financial Stability Board 2017). On the other hand, there is no clear declaration from deposit insurance scheme if customers are refundable when hijacked by third party Fintech companies. Moreover, there are investment risk caused the lack of investor’s confident while there are case studies on fallen of POWA TAG, a UK mobile payments companies as well as a high profile crowd funding company, ZANO (Cellan Jones 2016a, Cellan-Jones 2016b).
Furthermore, different regulatory approaches across jurisdictions are also the challenges in Fintech. However, this may not be able to achieve due the existence of Cyber threats and Cyber risk. Therefore, the world financial service regulators such as United States and United Kingdom getting more involving as Cyber risk is the threat to financial operating activities (Deloitte & Touche LLP 2016). In the report, they also highlighted the cultures of Fintech companies are distinctly different from financial institutions. For example, regulators are more concerning on risk management framework and would prefer banks to maintain their relationship with their customers, hence transform more slowly while comparing to Fintech companies which operate their business in rapid growth of innovation. On the other hand, “big data analysis” is also the one of the new technology paradigm in Fintech industry. There are some of the studies revealed the challenges and technical issues on how big data could accelerates the developments of Fintech industries in near future (In 2017).
In the section below, the recent developments of Fintech regulation will be conducted by selecting three countries who initiated in Fintech investment and regulations: China, Hong Kong and Singapore.
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