Why Fintech Needs the Right Regulation to Help Drive Innovation

This article was originally published in Future of Business and Tech on Sept. 2, 2021 here. 

You probably use cash a lot less than you did 10 years ago, and writing personal checks is a less frequently used form of payment as well. Overall, you may use your wallet a lot less — and your smartphone a lot more — to make payments, send funds, and buy goods online. We’ve come a long way in a short time.  

Some think of fintech (financial technology) only as something complicated involving cryptocurrencies like Bitcoin, but for many, the future of payment technologies is already here. Peer-to-peer payment — using a smartphone or computer to send payments — is a familiar example. With a click of a button and an email address, you can send payments to anyone around the globe. 

Growing around the globe

Contactless payment and digital currencies are promising technologies that are expanding both in the United States and internationally. Many point-of-sale systems rely on a wireless chip instead of a customer physically swiping their card. Recently, China made headlines by introducing a pilot program for its own digital currency. America has been more cautious, however, and U.S. Federal Reserve Board Chair Jerome Powell recently announced that the Federal Reserve will soon issue a study on the merits of issuing an American digital currency. 

Online non-bank lenders have also had a notable role in the fintech revolution. Before advancements in financial technologies, consumers and businesses seeking funds would have to go to a physical bank, fill out paperwork, and wait to hear back about the loan amount and terms. Now, all of this can be done online.

The Small Business Administration’s Paycheck Protection Program (PPP), which helped over 8 million small businesses weather the pandemic, shows the growing power of non-bank lending. The Federal Reserve Bank of New York recently issued a report showing that although a small share of the total, fintech lenders likely served borrowers who would not have received these loans otherwise. 

Seeking guidance

The rapid rate of change coupled with the potential benefits of fintech innovation makes it critical that companies have clear standards to follow, and for fintech to be used correctly and safely, it needs the right oversight and direction. The absence of a clear and easy-to-navigate regulatory framework places fintech innovators in a regulatory maze with more dead ends than paths for approval, and America risks losing those entrepreneurs to other countries that are establishing pro-innovation regulatory frameworks.

One thing is certain: if the United States doesn’t move ahead with fintech innovations, others will. We need sensible, flexible fintech regulation that takes into consideration existing and future technological innovation based on transparent rules that will promote innovation, protect consumers, and create the framework for a 21st-century financial payments system. 

The fintech revolution is happening now — it’s time to act.