FinTechTalk: Striking the balance between innovation and compliance

On 13 February 2024, FintechTalk host Charles Orton-Jones was joined by Yemi Oluseun, Agile Project Programme Manager – Growth, Global Expansion & Digital Transformation Projects, The Change Hive; and Nomzamo Xolani Maziya, Head of Strategy and Research (Compliance), Absa Group. Innovative products and the imminent regulation of AI Currently, there are 9000 fintech start-ups around the world. The relationship between regulation and innovation is not always as adversarial as it’s often regarded. Open Banking in the EU, for example, opened the door for fintechs to disrupt incumbents and spur them on to implementing solutions that can improve customer experience. However, some innovations, such as BNPL jump ahead of regulators as a new technological solution. In the case of BNPL, there is a strong need for campaigns to raise awareness that it’s in fact a credit product. The UK is going to release the draft paper for AI regulation in March. As AI feeds on data, it’s especially important at this stage that as many stakeholders get involved as possible to discuss how to ensure that data remains in safe hands – especially in sectors such as banking and finance. As 85% of South Africa is now banked, the next step is to find ways of personalising services for customers. AI is a key tool to personalisation. However, regulators usually see it as a black box thanks to its lack of transparency and explainability. New frameworks need to be worked out regarding what should be considered an AI model and what is meant by responsible governance in the context of algorithms. Has the banking sector got a good understanding of AI? ChatGPT has shown both the potential and the risks of AI. AI models tend to be black boxes, but a lot of new AI solutions also leverage third party tools, which makes transparency even more of a challenge. It’s also key that the data fed into these models is unbiased, otherwise certain demographics may get excluded right from the design stage. Full benefits of AI will be seen when historic data can also get cleaned and prepared for training models. In the banking sector, the main challenge is to keep confidential and identifiable personal information away from training data sets. Meanwhile, regulators are increasingly taking a less binary approach too. The focus is now on the materiality of a certain risk. In Africa, too, innovation is happening in the fintech sector and not primarily in strictly regulates financial entities. However, innovative fintechs also put pressure on incumbents to innovate, which they often do through partnerships with fintechs or setting up a digital native branch of the business. South Africa has the advantage of a late adopter in terms of regulation, which gives the country the opportunity to learn from the mistakes of jurisdictions who lead the charge with regulation. There are fears that Europe is too officious regarding regulation and can stifle innovation. Excitement about technology, on the other hand, should be tempered with checking whether there is a business case for implementing a certain type of digital technology. Although big banks can’t adopt the “move fast, break things” approach of Silicon Valley, they have what fintechs don’t – scale. So, there is room for collaboration and partnership between these two types of businesses. Panel’s advice 7 steps to take as an innovator: © 2023, Lyonsdown Limited. Business Reporter® is a registered trademark of Lyonsdown Ltd. VAT registration number: 830519543