As the founder of Chargebacks911, I’ve taken it upon myself to champion the cause for a more nuanced approach to accountability within the diverse fintech landscape. This includes all the players in the game: money movers, payment processors, and software technology service providers. All work together to serve as a conduit for payments.
In recent years, the fintech sector has been expanding at an impressive compound annual growth rate of 20.5%. According to projections, we’re looking at a staggering $700 billion market by 2030. This growth presents immense opportunities for providers to introduce a broader range of applications and services.
I believe that any fintech company involved directly in facilitating transactions should be regulated similarly as such. However, companies providing services to these entities are a different story altogether. They don’t exercise the same (or any) control over the money, so applying the same rules to them simply isn’t justified.
The Role of Service Providers
Now, let’s talk about service providers, because it’s essential to understand the distinction here.
Not all software companies serving fintechs should be subject to the same regulations and restrictions. Many of these companies don’t deal with money movement or banking activities. They offer an interface to connect two end points or provide a data processing service. Companies like AWS, Tableau, and those akin to DocuSign, help financial institutions standardize and streamline data inputs and outputs with configurable templates.
A service provider’s focus may lie in automating complicated workflows and offering configurable interfaces to manage processes. As the market grows more complex, the demand for solutions that streamline processes, unify datasets, and provide scalability has surged. This is where service providers that help financial institutions scale come in.
This differentiation doesn’t absolve companies engaged in fraudulent activities. Instead, it ensures that everyone is properly accountable, and that regulations are responsive to the functions actually carried out by a company.
The Benefits of Nuanced Rulesets
Implementing new, more specialized regulations in the fintech industry can offer significant benefits to both consumers and merchants.
For consumers, these rules could allow for enhanced protection against fraudulent practices. They could ensure that companies moving money are more effectively regulated, minimizing the risk of fraud. Also, by differentiating between companies that actually move money and those that merely exist within the fintech space, regulation may encourage the growth of more innovative fintech solutions. This would ultimately benefit consumers through enhanced services and competitive pricing.
For merchants, more applicable regulation could lead to reduced operational risks and clearer compliance guidelines. In addition, merchants could benefit from a more competitive service provider market, which could drive down costs and inspire innovative solutions for managing a variety of internal operations.
However, creating and implementing new regulations is a complex process. It involves comprehensive industry analysis, stakeholder consultations, drafting, and enactment, all of which take considerable time. Depending on the urgency and political will behind these changes, we might begin to see results in a few years. It’s important to remember that even after the regulations are in place, it will take some time for companies to adjust their practices and for the full benefits to become apparent.
So, what can we do in the meantime as a part of the fintech ecosystem? I think we must continue to advocate for these changes and work within our organizations to uphold the highest standards of service and accountability. This approach will not only prepare us for future regulations, but also serve our customers and partners better in the present.
Final Thoughts
Understanding the true role of financial technology services, and making regulation responsive to that fact, is of paramount importance.
I firmly believe we need a clearer understanding from regulatory agencies on this front. It’s grossly inaccurate to lump all companies selling solutions supporting financial services or having fintech clients into one group. This approach is not only detrimental to the economy but also poses a threat to consumers.
For a successful and mutually beneficial financial ecosystem, it’s vital to take a more nuanced approach to regulation. We should ensure that commerce and the mechanisms and policies governing payments are not hindered by misaligned regulations, which treat service providers the same as financial institutions or retailers.
