Fintech Regulation and Investment Highlights
December 20, 2016
Financial technology, or “fintech,” is a rapidly growing industry involving the provision of financial services through the assistance of software and new technologies. Global fintech investment is rising, and the industry is being recognized as a key component for the future growth of financial institutions. Through the sale of financial services and solutions, some fintech companies are even beginning to compete directly with banks and other traditional financial institutions. As can be expected, fintech regulation is a main concern for investors and shareholders worldwide.
Fintech is diversifying into more and more areas as the technology continues to proliferate. Most fintech companies can be categorized into key verticals such as:
- Payments and Billing Tech: These types of services and technology range from facilitating payment processes to various billing tools.
- Institutional/Capital Markets Tech: Companies are now providing tech tools to large financial institutions like banks, mutual funds, and institutional investors. Tech systems can include financial modeling software and alternative trading processes.
- Insurtech: Insurtech utilizes technologies and platforms to help optimize insurance requirements and processes. These can involve a wide variety of areas like underwriting, claims, IT issues, and distribution.
- Blockchain/Bitcoin: Blockchain technologies operate through decentralized ledgers, which help make transactions more efficient. This is currently a hot topic, with some central banks making considerations towards adopting it. Financial institutions still need to examine best practices in this area.
- Regtech: This technology aims to reduce costs of regulatory compliance by improving technology that analyzes risk outcomes for financial institutions.
As mentioned, fintech is constantly expanding into new horizons and is pushing the boundaries between financial services and technologies. Other fintech developments to keep a watch for include data and analytics, equity crowdfunding, money transfers/remittance, and lending tech.
Fintech Regulation Highlights
Laws and regulations covering fintech are still in their incipient stages, as the fintech industry itself is relatively young. Regions like Europe and Australia are still seeking regulatory standards, while trends in the U.S. may indicate a move toward relaxed regulation of fintech companies.
For instance, the House of Representatives has already passed its first fintech-related resolution last September, which aims to create a national policy to foster fintech development. While that resolution was somewhat innocuous, American lawmakers have proposed a new bill that is more directly aimed at facilitating the growth of finance technology in the U.S. It would accomplish this by exempting fintech companies from certain technologies, allowing them to provide products to consumers on a trial basis without having to pass through the full regulatory gauntlet prior to launch.
Global Fintech Investment Figures
KPMG has released a report titled “The Pulse of Fintech, Q3 2016.” It provides important data regarding fintech investments around the world. Some important figures and takeaways from the report include:
- Asia is leading fintech investment, with $1.2 billion in Q3 ‘16 (35 deals).
- North American fintech landed $0.9 billion in investment (96 deals).
- Europe is lowest, with $0.2 billion invested in fintech (38 deals).
- Total of $2.4 billion in global funding from 178 deals
- Collaboration between banks and fintech companies is on the rise in Europe, especially in the U.K. and Ireland.
- India is favoring higher quality deals at the expense of the number of deals.
- Germany, Switzerland, and Singapore are also performing strongly.
Lastly, there is logically a growth in merger & acquisition activity with fintech companies. The market provides ample opportunities at the moment for financial institutions to acquire fintech companies and integrate new capabilities.
Financial technologies are moving well beyond mere data storage and cybersecurity concerns, and are now working their way into all sectors. As mentioned in a previous blog, CEOs and boards a placing a high premium on technology and innovation. One of the main strengths of fintech companies is their ability to identify the needs of customers and create innovative solutions in a relatively short period of time.
Thus, one of the challenges facing the fintech industry is regulation, as it has the potential to either facilitate or hamper the speed at which fintech companies can manifest their ideas. If you have any questions or concerns regarding regulation in the financial sector and its impact on shareholders across the world, contact us at Kessler Topaz. Our team is committed to staying at the forefront of developments that can affect stakeholder rights.