Fintech and Striking a Balance Between Innovation and Consumer Protection
Fintech, which refers to the use of new technologies in the financial services industry to improve operational and customer engagement capabilities by leveraging analytics, data management and digital functions, is disrupting traditional financial services and creating opportunities to tackle problems such as financial inclusion, poverty and access to capital at an accelerated speed.
Fintech startups providing mobile payments and alternative lending services have upset the status quo under which traditional financial firms such as banks and other regulated financial institutions operate, by creating alternative, often cheaper and more accessible venues to obtain capital and make payments.
Until now, Fintech has operated within a parallel world to the traditional financial sector because no specific regulations had been put in place to deal with Fintech operations.
However, this is changing; governments are beginning to comprehend the benefits and harm this unregulated subsector brings to the marketplace. As of recently, federal financial regulators have started to release a number of policies and proposals to tackle the unregulated Fintech sector.
The last couple of months have seen a push from the full gambit of financial regulators to implement policies aimed at fostering financial innovation while providing certain protections to consumers. For example on May 10, the Treasure Department published its white paper on online marketplace lending industry which provides policy recommendations aimed at developing more robust borrower protections and effective oversight, promoting a transparent marketplace and supporting the expansion of safe and affordable credit.
Innovation is known to produce positive changes. However, in the case of the financial sector, innovation could act as a double-edged sword by opening the gate to abusive practices. While the recent efforts by regulators seem to be going in right direction, it remains to be seen whether regulators can find a way to strike a productive balance between innovation and consumer protection.