In our minds’ eye, anytime we hear the word disruption it gives us a mental feeling of anything that disturbs the normal order of activities and causes inconvenience. In the financial services industry, however, disruption can be understood in terms of how technology is changing the traditional ways (the old order) of providing products and services to the public. Technological disruption is not taking place in a vacuum, there are emerging hi-tech companies operating in the digital space which are making waves in a bid to make financial services more accessible to the public. We call them Fintech.
We can attest to the fact that these savvy Fintechs (financial technology companies) are challenging the conventional business models across many sectors of the economy, including banking, insurance and the securities market. In banking, for instance, the fintechs provide a bouquet of services to the specialised deposit-taking institutions. A cursory look at the operations of PaySwitch, one of the Fintech companies which recently launched its operations, revealed the following range of business solutions: Card Issuing & Personalisation, ATM & Point of Sale (POS) management and E-Commerce.
In the same vein, Superfluid Labs – another fintech company – offers innovative products and services within the domain of data analytics, risk-based debt collection, credit-scoring and digital lending. The company’s SuperWallet product allows for personal financial tracking and is used by Financial Services Providers to design and offer targetted financial products (e.g. savings, credit, investment, etc.) to their customers.
Again, Fintech companies are disrupting insurance underwriting and claims management processes. For instance, Vanguard Assurance Company – one of the leading players in the insurance market – has improved its claims management through a new digital application platform dubbed ‘Vanguard Telematics’. This digital application is an add-on to the Motor Insurance policies, and in case of an accident the policyholder activates the application to notify the company for prompt claims payment without necessarily relying on the usual formal procedure for the notification – which requires police reports.
Indeed, through their operations, the Fintech companies have positioned themselves as the rallying point for deepening financial inclusion and enhancing customer experience in the financial services sector. Regarding financial inclusion, the World Bank Group President Jim Yong Kim recently noted that: “In the past few years, we have seen great strides around the world in connecting people to formal financial services”. Thus, “financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency.
“Having access to financial services is a critical step toward reducing both poverty and inequality, and new data on mobile phone ownership and Internet access show unprecedented opportunities for using technology to achieve universal financial inclusion.” In that respect, the contribution of Fintechs to deepening financial intermediation cannot be under-estimated. Therefore, the roles of government, regulators and other stakeholders are very necessary to streamline Fintechs’ operations.
While government will always be called upon to create a stable business environment through tax incentives and policies for the growth of the Fintech landscape, efforts which aim at establishing a clear-cut relevant regulatory framework to define their operational parameters and sanctions should also be of urgent priority.
As far as one can tell from the existing regulatory arrangements, we do not have a single supervisory agency that has an exclusive mandate and regulatory authority on Fintech companies’ operations in the country. At best, we have a semblance of their activities being controlled by different legislations and institutions. For instance, the central bank presently does not regulate the fintech companies but approves a range of payment instruments – (E-cards, Internet & Mobile Banking services) – which they develop for the banks. Indeed, Fintech companies’ value propositions aim at convenient, efficient and safe non-cash retail payment and funds-transfer mechanisms.
These invariably feed into the drive by the Ghana Interbank Payment & Settlement Systems (a wholly-owned subsidiary of the Bank of Ghana.) to promote the cashless economy. The Guidelines for e-money issuers and Agent Guidelines on the activities of dedicated e-money issuers (DEMIs), which include Mobile Network Operators (MNOs), also have a direct bearing on some Fintech companies’ operations. At this end, you will agree with me that some of the related activities of the Fintech companies fall under the central bank’s purview but outside its supervisory authority.
It is also worth recognising that, under the Payment Systems and Services Act, a company may be eligible for licencing as a Payment Service Provider if among, other considerations, its purpose(s) reflect the “provision of technological services to facilitate switching, routing, clearing, data management; and the provision of electronic payment services to the unbanked and under-banked population”.
In fact, “payment service” has been explained as the “provision of service to facilitate the transfer of funds from a payer to a payee using various forms of payment instruments or electronic money”. A payment service provider itself is recognised as a company that is licenced or authorised to provide payment service. The Act applies to institutions largely regulated by the central bank. Here again, you will realise that the Fintech companies are operating in areas the central bank regulates.
Fintech companies facilitate many of these services and have been strongly perceived as competitors to the banks. But regulatory-wise, unlike the banks, they don’t have a regulatory body that exercises direct oversight control over their operations. As a result, the Fintech companies are confronted with a situation in which they take it upon themselves to identify and comply with regulations they deem appropriate and control the specific business areas they operate in.
Streamlining Fintechs’ Operations
While it is worth noting that financial (laws) are made to be complied with across the board by persons and (or) body corporates in any jurisdiction, and therefore an argument could be made that the Fintech companies should do the same in our country. The issue, however, is that their operations are finance and technology inclined. These have a direct relationship with emerging risks – cybersecurity and financial crimes (money laundering, terrorist financing), but we do not have in our laws a definition of what a Fintech company is. Hence, enabling us to easily hold them to the task of strict regulatory compliance demands they streamline their operations.
In that respect, there should be a clear regulatory framework that defines technology companies operating as fintechs in relation to others which are basically software providers. This will require appropriate authorities to take up the responsibility to develop and issue fintech specific licencing requirements and operational guidelines on their business conduct. This will also provide administrative procedures for fair competition, complaints-handling and dispute resolutions. Issues which are also very germane to the Fintechs’ business centre on finance, technology, security, data protection and other connected matters should not be glossed over.
Keep reading and enrich the discussion. May we have a productive week as we look upon the Lord to bless the works of our hands.