When Fintech Regulation Creates Opportunities, Instead of Destroying Them

Posted by Bradley Chalupski on Oct 5, 2017 8:00:41 AM

3 minute read

There’s no doubt that regulation is often the bane of a Fintech company’s existence.

The barrage of federal regulations coming out of a decentralized and fractured US regulatory system is enough to keep CEOs up at night — and that’s before you get to the state and local level. What’s more, companies that do manage to meet all regulatory requirements then have uncertain liability risks for things such as data breaches and functionality issues with their products to look forward to. And that’s just the top of the iceberg.

Understandably, all of this has left the majority of Fintech companies feeling like government regulation offers nothing more than costly legal bills and buckets of (expensive) uncertainty.

However, there is a small but growing number of Fintech executives who are actively embracing the idea that these same regulatory obstacles offer opportunities. These forward-thinking people realize that their own company’s experience with onerous regulation offers critical insight into the problem — giving them the knowledge they need to start solving it for other businesses.

Identifying New Opportunities To Provide Value

For these executives, government regulations (especially those that force digitization on the market) open up a new world of value propositions. In fact, Fintech’s unique position to solve these regulatory-induced, modern problems has been called “the connective tissue for businesses around the world.”

One good example of this is the European Union’s new “e-invoicing” directive. This piece of regulation requires businesses operating within the EU to meet a standardized set of requirements for electronic invoicing systems.

This electronic standardization requirement has sent companies scrambling to find a digital solution that allows them to stay out of the crosshairs. Fintech companies who already have to deal with their own regulatory requirements are well positioned to create products that will meet these requirements right out of the gate — ensuring that end-users remain in good standing right from the start of implementation.

But perhaps more important than the need for digital solutions is Fintech’s ability to come up with these solutions quickly. That’s something that should have savvy Fintech executives viewing regulation not as a curse, but as a blessing.

Monopoly Busting of the Highest Order

It’s no secret that governments and regulatory agencies around the world are struggling to keep up with the rapid changes in technology happening across all sectors. It’s also no secret that the most common legislative response is to simply regulate things as quickly and thoroughly as possible, even if no one really understands how, what or why they are regulating.

For Fintech companies, the ability to react faster to this uncertainty than the traditional financial services sector offers the best chance to bust up these banking monopolies.

Because for every seemingly reasonable regulation, like the EU’s e-invoicing directive, there’s also an example of governments using amorphous phraseology to put companies on notice that they reserve the right to disrupt the regulatory environment — however they see fit.

Take, for example, the US Office of the Comptroller of the Currency (OCC). Just last year, they released a whitepaper outlining their principles for “responsible innovation”. It’s a document awash with legalese such as:

“The OCC will develop or augment existing training to reinforce its receptiveness to responsible innovation and develop additional expertise to evaluate the opportunities and risks related to specific types of innovation.”

This is government code for “we’re going to do whatever the heck we want, whenever the heck we feel like it”. And when governments start talking like that, it’s the businesses able to react quickly that carry the day. Fintech has that ability; traditional banking does not. This makes the current environment one in which Fintech has an edge over its more entrenched rival.

Over-Regulation Reminds Fintech of Its Purpose

There’s no doubt that Fintech companies are vulnerable to the caprice of government regulators. But although it’s frustrating, those who look past the frustration and keep a cool head see the opportunities this new world of over-regulation creates.

In the end, this really shouldn’t be as difficult as it seems. The purpose of a Fintech company is to create technology that provides more effective solutions to customers. It may seem counterintuitive, but while entrepreneurs generally don’t applaud governments for creating new problems via regulation, it doesn’t change the fact that they can be part of the new solutions required.

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