FinTech is the financial sector’s new buzzword. This has, for some time now, been the case in the US and Asia, but in Europe we have just started to become aware of the importance of FinTech. At conferences, I ask the attending financial delegates, on a regular basis who owns a bitcoin? Virtually nobody raises their hand.
In Europe, we should not only be continuously looking over our shoulder to see if another crisis is looming, but also looking forward to facilitating new developments; if we do not jump aboard the FinTech train soon, we will find ourselves out of the game.
Most investments in FinTech have so far been in the US, China and Israel. Even in Latin-America and Africa, FinTech has had a head start.
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If Europe aspires to be competitive and keep its state-of-the-art financial infrastructure, rapid innovation should be the new norm. Opportunities are huge, both for industry itself as well as for consumers.
FinTech leads to more transparency, more convenience, greater freedom of choice, better and quicker services and lower costs for consumers. The financial industry can also profit enormously from FinTech developments such as big data and robo-advice. Moreover, FinTech lowers costs and ensures better risk management.
That is why I have dedicated myself to putting FinTech high on the European agenda. My report was adopted by the Parliament on 1 June. My key point is that European regulations must make room for greater developments in FinTech in order to facilitate Fintech.
The absolute priority in FinTech is cyber security. Robbers entering banks with a gun in hand are now just a relic of action films - nowadays, thieves are more likely to be hackers sitting in a garage with a beer in hand. Cybercrime is a growing problem globally.
According to accounting firm Grant Thornton, cybercrime costs society around $280bn per annum, while another estimate from the internet security frim McAfee, finds that the total financial damage for organisations and society as a whole is closer to $400bn.
More surprisingly, more than 80 per cent of available digital data in the world was created in the last two years. This illustrates how data streams have grown exponentially in just a short period of time.
This is a cause for concern. I have, therefore, been advocating strongly for greater focus on cybersecurity at banks and other financial institutions, for instance in stress tests. In addition, regulatory bodies should ensure proper exchange of knowledge and experience between companies and governments. There is much at stake here; for entrepreneurs, governments and consumers.
The future financial sector will need more technical staff, not just to develop algorithms, but also to protect the enormous amount of data coming our way.
The same applies to financial regulators; they need to dive into the complexities of FinTech developments, to understand what is going on and how FinTech relates to the real economy, before making any decisions. Besides that, ensuring a level playing field is very important.
There are many newcomers on the FinTech market. FinTech is not just for traditional banks and insurers.
A lot of small start-ups are also engaged in FinTech. Of course, techs giants such as Apple and Google also play a significant role. The future customer does not care whether the financial product is from Apple, a traditional bank or some hip young start-up. Therefore, the principle of ‘same services, same risks, same rules’ must apply. Only by giving all the parties involved equal opportunities, will we enhance innovation.
We also need to be able to experiment with FinTech solutions in Europe. By allowing the testing of new innovations with the help and support of regulators, financial services will gain knowledge and experience, without endangering the interests of consumers.
The Financial Conduction Authority (FCA) in London, has created a ‘regulatory sandbox’ for new FinTech possibilities to be tried out. This is not about exemption from regulation, or ‘regulation light’.
This is about a change in attitude, whereby we focus on the opportunities instead of the problems. A switch from ‘rules-based’ to ‘principle-based’. For instance, working in a safe environment and on a small scale, the ECB could experiment with crypto-currencies.
We should focus more on addressing all that FinTech has to offer in order to be able to attract the economic growth relating to these new developments. Europe is a potential world champion. A more competitive an innovative European financial sector is at our fingertips. All we need is to innovate.