2020: The Make or Break Moment for Fintech

Adrienne Harris, Financial Services Executive, and Jane Barratt, CAO at MX, cover how the dynamics of fintechs have evolved this year, the new role of fintech in providing support to financial institutions worldwide, and fintech regulation in the US and international markets.

Harris emphasizes that this is the first down cycle fintechs have experienced. She says, “Now we're getting this firsthand look at evidence about what's going to happen in the sector, how it's going to perform, not just in the lending space, but more broadly. We’re also seeing if the perception of fintechs as kinder, friendlier versions of financial services (because they have more transparency and engagement around financial health) is true. Lastly, we’re seeing if these business models are going to stand up and correspondingly, how VCs are going to react and where they're going to put their money.”

When it comes to regulations, Harris says that “historically, there's been this antagonistic relationship between regulators and financial services, and then we had fintech come onto the scene, and I think the sort of disconnect between the policy world and the innovation world was highlighted for everyone. In some ways, the business model of regulation is slow and deliberative and takes into account all stakeholders. So by design, it is going to lag innovation in the private sector. What we've seen over the past 10 years is what's the right amount of distance between innovation in the private sector and policymaking and regulation.”

Harris believes things have shifted from an antagonistic model to an engagement model. She says, “We see it here in the US more so, and I think other jurisdictions around the world where there are regulator office hours and sandboxes. We see lots of great examples of how regulators, and in particular central banks, are really embracing innovation and trying to be close to industry to make sure that innovation is developing in a responsible way.” She adds, “Rather than think about which regulations in particular will change and how, I think of it more as a regulatory posture in general will change and be more about partnership and engagement and finding ways that regulation can be flexible while still accomplishing its goal of protecting consumers and markets.”

When it comes to innovation in this time, Harris states, “I think the adoption of digital payments certainly has made this crisis easier for lots of jurisdictions around the world. There's lots of examples from the African continent about how quickly they were able to deliver a stimulus to people. The US really has lagged. Part of that is legacy financial infrastructure, and change management is hard versus jurisdictions where there isn't that existing infrastructure. I think this crisis as well will cause people to go back, refine their thesis, and come up with new innovations. It’s going to be true on the government side as well as in the private sector.”

Harris believes, “Financial institutions need to know what their process is. Who's got to sign off on what, the order of operations, and the project plan, so they can move fintechs through it quickly. And fintechs, similarly, have to have an understanding of what the financial institutions’ processes are and do not expect them to move fast and break things kind of timeline.”

Looking into the future, Harris hopes “to see out of the fintech universe, and the financial services universe more broadly, not only that we provide education to people, but that we provide better options for them and help reduce the time between financial education and financial decision making.” When it comes to product offering, she adds “One of the things I’m looking forward to is that innovation in the financial sector will broadly lead us to this technology that helps us truly optimize financial decisions. And it's going to take lots of responsible use of data, and probably some more development in the cognitive technologies like AI, but I'm hopeful that we'll see that come along pretty soon.”