With such a wide range of businesses becoming part of the world of financial technology (fintech), Western Union’s Vice President Public Policy and Regulatory Affairs, Chloe MacEwen, says policy makers themselves should innovate when regulating the new landscape. Chloe was invited to speak at the Norton Rose Fulbright payments innovation workshop where she offered her thoughts on what this future could look like.
There is talk of a fourth industrial revolution, and by that people usually mean the blending of technologies, blurring the lines between the digital, physical and biological spaces. A lot of innovation is happening at dizzying speed, and we are becoming increasingly reliant on technology. If innovation is something that we celebrate however, we need to make sure that it works for the greater good.
With this goal in mind, policy makers are right to consider the best way of regulating the virtual world. The reason I say this is because there is a danger that by thinking too much about the physical world and territorial boundaries, they will miss areas which also require attention. Some of the recent innovations exist only in the virtual world and account needs to be taken of this. For example, distributed ledger technology and cryptocurrencies are relatively new concepts that have come into the mainstream with great potential so long as they are not used by bad actors or to circumvent established legal systems.
Where is Western Union’s place in this constantly evolving landscape? Conventional wisdom is that technology is disrupting financial services, but increasingly the innovations are coming from interesting partnerships and integrations and we are well poised to make the most of this.
For example, we are working to facilitate payments for international purchases through amazon.com to enable people to buy globally and pay locally. In the Philippines we’re working with digital wallet Coins.ph to allow customers to receive transfers directly to their e-wallets. Financial services firms are thinking more like tech companies and vice versa; success depends on how widespread the platform is and on who it is reaching.
Flexibility to invent and innovate
All of the above is happening now, so what can policy makers do to keep up?
In short, financial services policymakers and regulators should start thinking like fintechs and create a regulatory environment which is risk-based, adaptable and future-proof. Fintech is not a single undertaking (not just companies providing open banking services for example), but technology underpinning a broad range of financial services. Technology is helping break down existing distinctions between asset classes – a bit like the convergence we saw a generation ago between TV/telephone and the internet. This means that any new regulation should be regulation of outcomes, not of the entity providing the service. So-called principles-based regulation could be considered the best way of ensuring that companies have the flexibility to invent and innovate as they see fit rather than having regulators tell them exactly how to go about running their businesses.
Although financial services regulation has been slow to adapt to the new technologies now shaping the market, that should not stop financial services firms innovating.
Instead, if policy makers can mimic the agility of the fintech companies, we can better work together to create a harmonious system that is more likely to empower business to adapt and serve customers’ needs for a long time to come.