11 February 2019
The 4th edition of the Paris Fintech forum ended not long ago. It was an opportunity for me to gauge the maturity of this event, which gave pride of place to innovation, but also—thanks to DSP2 and RGPD—featured regulation. What emerged from the many debates and lectures that took place is that discrepancies among regulations and the proliferation of European norms are currently the greatest drag on Fintech development, just as the GAFA are gaining momentum in this sector.
Confronted with a resurgence of cyberattacks, identity theft and payment fraud, FinTechs must be able to rely on digital identification tools that are speedy and effective. This is the challenge of tomorrow’s KYC (Know Your Customer): optimising and systematising technologies for digitalising identity and securing the identification process, such as facial recognition or Machine Learning.
‘RegTechs’ (an industry at the intersection of regulation and technology) seek to address these technological issues. How quickly FinTechs are able to incorporate the solutions offered by these new players will be critical, and increasingly constitutes a barrier to entry for new players, all the more so as multiple—and sometimes contradictory—norms now structure their industry.
European states have a role to play in establishing common standards and agreeing on a single sign-on protocol along the lines of France Connect, which enables citizens to access a variety of services following a single sign-on portal. This is particularly important given that sign-on via third-parties such as Google or Facebook represents a viable alternative to RegTech offerings. We might be witnessing the first stage of a GAFA move into competing with FinTech companies, whose activities depend heavily on their KYC capabilities.
We should not forget that artificial intelligence, or AI, is neither more nor less than a collection of technological mechanisms for simulating human intelligence using algorithms and data. Wherever there is data, there is the potential for AI. This is why banks, which deal with massive quantities of data, are increasingly turning to AI (via Machine Learning technology), particularly to combat fraud. Here again, FinTechs have an important role to play as banking information comes online. And here again, they will have to confront the GAFA, which also possess vast reservoirs of data and could destabilise or profoundly undermine the financial services sector.
The decision-making processes of regulators are long and involved, whereas innovation takes place quickly and involves constant evolution. A number of regulators have secured qualified specialists and tools for understanding and encouraging innovation in the realm of financial technologies. This is the case in France, where the AMF (French Financial Market Authority) and ACPR (French Prudential Supervision and Resolution Authority) have jointly launched a consultative body bringing together business leaders and cutting-edge technology experts to better assess the regulatory and prudential issues associated with financial innovation. This is a big step forward! However, it will not suffice unless there is international/Europe-wide cooperation. As long as a standardisation and harmonisation of regulations escapes us, FinTechs will have trouble developing. Indeed, they will be hard pressed to continue existing in the face of Chinese and US competitors (both current players and those with the potential and power to launch an assault on the financial industry).
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